The Fed’s commitment to supporting the economy is undeniable, as emphasized by Jerome Powell. Despite predictions that the Fed could potentially cut rates five times in 2025, Paul Gruenwald, the global chief economist at S&P Global Ratings, suggests that a slowing US economy may give the Fed an opportunity to make these cuts. With expectations of lowering rates by 2 full percentage points as inflation cools, Gruenwald believes that the current hot pace of growth is not sustainable in the long term.
The global chief economist anticipates three rate cuts in 2024 and possibly up to five rate cuts in 2025, totaling a two percentage point reduction in interest rates over 21 months. While there are risks that could affect this forecast, such as a significant downturn in the labor market leading to higher unemployment, Gruenwald remains cautious about his prediction of the Fed’s rate-cutting strategy. This outlook contrasts with some Wall Street analysts who believe that rates may remain elevated for longer due to persistent high prices.
In light of unexpected inflation acceleration in recent months, economists are closely monitoring inflation levels and their potential impact on financial conditions. However, the general sentiment is that the Fed will likely continue its path of gradual rate cuts based on economic indicators and inflation trends. Despite seeing a surge in productivity and investment this year, Gruenwald believes that the economy will inevitably slow down and prompt the Fed to act to counter rising inflation and bring it back to its target of 2%.