Fed rate setters have long insisted that only data can guide the Fed when to start cutting rates. With U.S. inflation steady around 3%, close to the Fed's 2% target, conventional wisdom suggests the Fed could cut rates once or twice in 2024, although some have suggested that a rate cut at all is not necessary in 2024.

Some analysts even say that rate cuts may come earlier than expected, and the Federal Reserve may still cut interest rates as many as three times this year.

But for now, two rate cuts seem more likely, but according to two investment experts, the prospect of the Federal Reserve cutting interest rates three times this year is starting to come into view.

“Stay ahead of the problem”

“This is all about risk management,” Neil Dutta, director of economic research at Renaissance Macro Research, said on Monday.

"Unemployment is slowly rising, maybe about 0.1 percentage point per month for the last three months, and inflation is falling and will probably continue to fall. But bankruptcies are increasing, both corporate and personal," he said.

There is little reason for the Fed to wait for complete certainty before acting, he said. Inflation is falling. The stock market's gains are increasingly being driven by gains in a few stocks. So, Dutta suggested, "Why not get ahead of the problem?"

Typically, the Fed cuts rates sharply when a recession is clearly underway, but he noted that the Fed cut rates at least twice, in 1995 and 2019, before a recession had begun.

'Good' jobs report also shows problems

The U.S. economy is showing signs of stress, according to Peter Tchir, head of macro strategy at Academy Securities, a Connecticut-based financial management firm.

In an article on Monday, Tchir recommended that the Fed make three rate cuts in 2024, totaling 75 basis points.

Tchir's concerns were highlighted by the June nonfarm payrolls report, released on July 5. While the jobs report looked good on the surface, he wrote that the job market "is no longer strong and certainly not as favorable to job seekers as it was for most of 2023."

He then used the Taylor rule to argue that the federal funds rate was too high. On the Atlanta Fed's website, users can calculate what the federal funds rate should be based on different scenarios. When he entered some assumptions, he came up with calculations of 4.61%, 3.91% and 3.61%, all lower than the current federal funds rate.

It is unclear whether Fed Chairman Jerome Powell will mention Dutta or Tchir’s analysis in his testimony when he testifies before the Senate Banking Committee on Tuesday and the House Banking Committee on Wednesday.

But the two analysts are not alone. Many have noticed rising levels of stress in the economy, such as these four signs:

Bankruptcies are up 28% this year through April, according to the American Bankruptcy Institute. Individual filings are up 28%. Small business filings are up 40%.

According to the latest jobs report, wage growth is slowing;

Home sales have been flat or down all year as mortgage rates have failed to definitively fall below 7%. U.S. home sales fell in March, April and May, and there are signs that they fell in June as well.

Consumers aren't spending as much as they used to, forcing fast-food chains like McDonald's and Wendy's to promote value meals.

Investors have been solidifying their view that the Fed will begin cutting interest rates in September, with federal funds futures pricing in about a 75% chance of a rate cut at the central bank’s September meeting.

Last week in Portugal, Powell said the Fed still needs more data to ensure that inflation has eased sufficiently. CPI data due on Thursday could have a big impact on whether the Fed can cut interest rates in September.