Fed Rate Cuts Slowing in 2025: Economists Predict Cautious Approach
The Federal Reserve is widely anticipated to reduce interest rates for a fourth time this year in December. However, the bigger question looming over financial markets is: what lies ahead for monetary policy in 2025?
Recent data showing stagnant inflation and a robust U.S. economy is prompting doubts about the Fed’s previously projected aggressive rate cuts. Back in September, the Fed’s Economic Projections predicted four rate cuts next year.
Economists Forecast a More Gradual Pace
Major economic institutions are increasingly aligned in their belief that the rapid rate cuts witnessed this year will not continue. Sarah House, Chief Economist at Wells Fargo, predicts the Fed will adopt a more measured approach, implementing cuts every other meeting in 2025.
With the federal funds rate currently sitting in a range of 4.5% to 4.75%, there’s a general consensus that this may represent the peak.
This has fueled speculation that further easing is likely, as the Fed aims to achieve the elusive "soft landing" – taming inflation down to its 2% target without triggering an economic slowdown.
However, recent progress on the inflation front has stalled. October’s Personal Consumption Expenditure (PCE) data showed a 2.8% increase compared to the previous year, still significantly higher than the Fed’s target.
This slowdown has prompted caution within the Fed. As Michael Bowman, a Fed official, stated, "This cautious stance on interest rate cuts is necessary due to the persistent inflation." Minutes from the November meeting revealed that some officials suggested pausing future rate cuts if inflation remains elevated.
2025 Outlook: Limited Cuts and Rate Stability
Economists at Morgan Stanley and JPMorgan echo the sentiments of Wells Fargo and Household, projecting that the federal funds rate could settle in a range of 3.5% to 3.75% by the end of 2025.
"With inflation easing and employment risks receding, we anticipate the Fed will slow the pace of tapering to once a quarter, then maintain the rate for a longer period," wrote JPMorgan’s Chief US Economist Michael Feroli in his 2025 economic outlook. “The trajectory beyond reaching a target range of 3.5% to 3.75% at the Federal Open Market Committee meeting scheduled for next September remains uncertain.”
The prevailing view is that the Fed wants to avoid overstimulating the economy with overly accommodative interest rates. Greg Daco, Chief Economist at EY, explains that the Fed is wary of fueling a resurgence in inflation through aggressive monetary easing.
Black Friday Offer: Take advantage of the discount now and catch stock market rally with tools to determine fair value and analyze earnings reports through Click here
Economic Policy Uncertainty Looms
As the new Trump administration takes office, uncertainty surrounding economic policies is on the rise. Analysts predict that some policies, such as tariffs, could lead to higher inflation, complicating the Fed’s task.
Deutsche Bank forecasts US economic growth at 2.5% in 2025, with the unemployment rate dropping to 3.9% and the core consumption expenditure index rising to 2.6% by year-end.
"The combination of stronger growth, a robust labor market, and heightened inflation pressures will put significant upward pressure on the Fed to maintain a hawkish stance on rate cuts," said Matthew Luzetti, Chief Economist at Deutsche Bank.
2024-11-29 13:56:00
#Key #Wall #Street #predictions #pace #interest #rate #cuts #Investing.com
## Fed Rate Cuts Cooling in 2025: A Measured Approach
**World-Today-News.com Exclusive Interview with Sarah House, Chief Economist at Wells Fargo**
**World-Today-News:** The Federal Reserve appears set to trim interest rates for the fourth time this year. But looking ahead to 2025,predictions of further aggressive cuts are cooling. What factors are influencing this shift in sentiment?
**Sarah house:** That’s right. While another rate cut this December seems likely, the landscape in 2025 appears significantly different. Several factors contribute to this. Firstly, recent data suggests inflation is plateauing, albeit at levels still above the Fed’s 2% target. Secondly, the U.S. economy continues to demonstrate remarkable resilience, with robust job growth adn consumer spending.
**World-Today-News:** Back in September, the Federal Reserve projected four rate cuts in 2025. Are these projections outdated given the current economic climate?
**Sarah House:** Absolutely. The September projections were formulated when the economic outlook was somewhat gloomier. The Fed anticipated a more pronounced slowdown in economic growth and a sharper decline in inflation. However, the economy has proven to be more robust than anticipated. This, coupled with sticky inflation, suggests a less aggressive easing cycle in 2025.
**World-Today-News:** So, what’s your prediction for the pace of rate cuts in 2025?
**Sarah House:** We anticipate a much more measured approach. We expect the Fed to adopt a “wait-and-see” stance, closely monitoring inflation data and economic growth indicators before enacting any further rate adjustments. Our current forecast suggests one or two rate cuts in 2025, rather than the four initially projected.
**World-Today-News:** What are the potential implications of this cautious approach for financial markets?
**Sarah House:** A more gradual pace of rate cuts could initially disappoint markets, which have become accustomed to rapid policy adjustments. However, in the long run, it could foster greater stability and predictability. Investors will need to adjust their expectations and focus on economic fundamentals, rather than anticipate further rate cuts.
**World-Today-News:** what are the key risks to this outlook?
**Sarah House:** Several factors could potentially derail this scenario. A resurgence of inflation, a sharper-than-expected economic slowdown, or geopolitical instability could force the Fed to reassess its strategy. Closely monitoring these risks will be crucial for both the Federal Reserve and market participants alike.
**world-Today-News:** Thank you for your insightful analysis, Sarah.
