Fed to Begin Cutting Rates More Significantly as US Economy Slows Down, Forecasts S&P Global Chief Economist

S&P Economist Predicts 5 Interest Rate Cuts in 2025 as US Economy Slows

According to S&P Global Ratings’ global chief economist Paul Gruenwald, the US economy will likely face a slowdown in growth in the coming years. Gruenwald predicts that the Federal Reserve (Fed) will begin cutting rates more significantly as inflation inches closer to its 2% target. This could result in a total reduction of up to two full percentage points over the next 21 months.

Gruenwald believes that despite current surges in productivity and investment, the US economy cannot sustain its current pace of growth indefinitely. He expects the Fed to implement three rate cuts in 2024 followed by up to five rate cuts in 2025. This forecast is more aggressive than other economists are projecting, but Gruenwald believes it is necessary given the current economic conditions.

Inflation is expected to inch closer to the Fed’s 2% target, providing the central bank with justification to begin cutting rates more significantly. S&P Global anticipates a 2.5% GDP expansion by the end of 2024 but foresees a slowdown in growth in the latter half of the year. Gruenwald emphasizes the importance of gradual rate reductions and believes that this approach will help prevent any potential increase in unemployment leading to more aggressive rate cuts by the Fed.

However, there are some upside risks to this forecast, including a potential increase in unemployment leading to more aggressive rate cuts by the Fed if needed. In contrast, other Wall Street forecasters believe that interest rates may remain elevated for an extended period due to persistently high prices. Some economists have warned that inflation could climb even higher this year, especially as recent AI-fueled stock market surge may exacerbate financial conditions without assistance from the Fed.

Overall, Gruenwald’s prediction suggests that monetary easing may become more aggressive over time as inflation cools and interest rates begin falling gradually.

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