In a recent statement, credit rating agency Moody's shared its analysis of the expected course of the US economy. The organization predicts that the FED may start policy easing with a 25 basis point (BP) reduction at the meeting to be held on July 30-31.
Moody's also expects the Fed interest rate to be reduced by 50-75 basis points in 2024 and another 100-125 basis points by 2025. This forecast is made at a time when inflation is approaching the FED's 2% target and concerns are growing that the strength of the labor market will be long-lasting as the FED puts the economic brakes on.
The FED may use the final days before the meeting to either signal an imminent rate cut or to explain why recent data does not warrant a transition to easier monetary policy. Recent forecast trends have strongly favored the Fed, especially after a false reversal late last year when interest rate cuts were on the horizon.
Currently, the consensus is that the inflation epidemic during the pandemic has been brought under control. “We expect a strong signal that reductions will begin at a meeting in July,” Citi analysts wrote on Friday. The announcement came a day after weak June inflation data led investors to raise the odds of a cut in September to over 90%.
That data has led some major banks and investment firms to advance their own rate cut forecasts, according to CME Group's FedWatch tool. As the economy improves as expected, these reductions are likely to begin in September.
*This is not investment advice.
