Fed Forecast: Up to Five Rate Cuts Expected by 2025 Amid Slower Economic Growth and Inflation Pressure

S&P Economist Predicts 5 Interest Rate Cuts in 2025 as US Economy Slows

According to S&P Global Ratings, the US economy cannot sustain its current pace of growth indefinitely. As a result, global chief economist Paul Gruenwald predicts that the Fed could implement up to five rate cuts in 2025, potentially reducing rates by two full percentage points. This forecast suggests that the Fed may lower rates as inflation cools.

Despite a recent surge in productivity and investment, Gruenwald believes that the economy is likely to slow down. This slowdown will lead to inflation inching closer to the Fed’s 2% target. This presents an opportunity for the central bank to begin cutting rates more significantly.

S&P Global anticipates a 2.5% GDP expansion by the end of 2024 but foresees a slowdown in growth in the latter half of the year. Gruenwald emphasizes that this slowdown is important for the US economy and suggests that the Fed will embark on a gradual rate reduction strategy.

However, there are upside risks to this forecast, such as an increase in unemployment leading to more aggressive rate cuts by the Fed. Nonetheless, Gruenwald still expects gradual rate reductions from the Fed. In contrast, other Wall Street forecasters believe interest rates may remain elevated for an extended period due to persistently high prices.

Some economists have warned that inflation could climb even higher this year due to financial conditions being exacerbated by recent AI-fueled stock market surge without assistance from the Fed.

In conclusion, S&P Global Ratings predicts that the US economy will face a slowing pace of growth and potential rate cuts by five times over two years due to inflation cooling and slower economic growth. The prediction suggests that interest rates could be lowered by two full percentage points, which would provide justification for significant monetary easing measures from the Federal Reserve (Fed).

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