New York: Fitch Ratings has indicated that the US Federal Reserve's interest rate cuts during this monetary easing cycle are expected to remain modest compared to historical reductions, according to reports.
Fitch expects the Fed to implement further 25 bps cuts at its November and December meetings, followed by four more 25 bps reductions throughout 2025, with the Fed likely to make adjustments at alternate FOMC meetings next year, the reports mentioned.
Despite a larger-than-expected 50 basis points (bps) cut at the Federal Open Market Committee (FOMC) meeting last week, projections suggest that the federal funds rate will be reduced to 4.5 per cent by the end of this year, 3.5 per cent by the end of 2025, and eventually reach a neutral level of 3.0 per cent by June 2026.
Fed Chair Jerome Powell highlighted concerns around rising unemployment, which increased to 4.2 per cent in August 2024, compared to 3.7 per cent in December 2023. Although the Fed’s forecasts show unemployment remaining low, Powell stressed the potential risk of continued unexpected rises.
Significant progress in curbing inflation since July 2023 has allowed the Federal Reserve to shift focus back to the maximum employment goal of its dual mandate. Fitch does not foresee a major decline in the US job market, noting ongoing payroll growth and resilient consumer spending. The recent rise in unemployment primarily reflects a recovery in labour force participation over the past 12-18 months.
