In recent years, the Federal Reserve has made it clear that it is committed to continuing to support the economy. Despite predictions that the Fed could potentially cut rates five times in 2025, Jerome Powell emphasized this commitment. According to S&P Global Ratings’ global chief economist, Paul Gruenwald, a slowing US economy may give the Fed the opportunity to make these cuts, with expectations of lowering rates by 2 full percentage points as inflation cools.
Gruenwald believes that while the US economy is currently experiencing a hot pace of growth, it will not be sustainable in the long term. He predicts three rate cuts in 2024, followed by possibly up to five rate cuts in 2025, totaling a two percentage point reduction in interest rates over 21 months. This outlook is based on his expectation that inflation will continue to rise and that the Fed will act to counter this trend and bring it back down to its target of 2%.
S&P Global’s forecast of GDP growth at 2.5% by the end of 2024 includes a projection of growth deceleration in the latter part of the year. This reflects Gruenwald’s belief that while there are risks that could affect this forecast, such as a significant downturn in the labor market leading to higher unemployment, he remains cautious about making any bold predictions about the Fed’s rate-cutting strategy.
Despite some Wall Street analysts warning that rates may remain elevated for longer due to persistent high prices, Gruenwald believes that gradual rate cuts are more likely based on economic indicators and inflation trends. However, economists are closely monitoring inflation levels and stock market performance for any signs of unexpected changes in financial conditions.
Overall, Jerome Powell’s emphasis on supporting the economy amidst predictions for multiple rate cuts highlights his commitment to maintaining stability and growth in the United States.