Jerome Powell emphasized the Fed’s commitment to supporting the economy in a recent statement. It was predicted by S&P Global Ratings’ global chief economist that the Fed could potentially lower rates up to five times in 2025. This projection is based on the expectation of a slowdown in the US economy, which would give the Fed the opportunity to make these rate cuts.
The forecast implies that the Fed could lower rates by a total of 2 percentage points as inflation cools down. According to Paul Gruenwald, the global chief economist at S&P Global Ratings, the US economy cannot sustain its current high level of growth indefinitely. He anticipates that the Fed will issue three rate cuts in 2024 followed by up to five rate cuts in 2025.
Despite a surge in productivity and investment this year, Gruenwald believes that a slowdown in the economy is inevitable. This will likely bring inflation back down to the Fed’s target rate of 2%, paving the way for rate cuts. S&P Global forecasts a GDP growth rate of 2.5% by the end of 2024, but with growth expected to slow down in the second half of the year.
Gruenwald suggests that the US economy will need to slow down eventually, with a forecasted slowdown in the second half of the year. While there are risks that could lead to more aggressive rate cuts, such as a significant increase in unemployment, Gruenwald still expects the Fed to lower rates gradually. This outlook contrasts with predictions from other Wall Street analysts who are concerned about high prices persisting for a longer period. Increases in consumer prices and potential inflation risks have sparked debate among economists on how the Fed should proceed.