Moody’s recently shared its analysis of the expected course of the US economy, predicting that the Federal Reserve (FED) may start policy easing with a 25 basis point reduction at the meeting on July 30-31. The organization 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 comes at a time when inflation is approaching the FED’s 2% target and concerns are rising about the long-lasting strength of the labor market 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 strongly favor 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, leading Citi analysts to write on Friday that “We expect a strong signal that reductions will begin at a meeting in July.” This announcement came after weak June inflation data led investors to raise the odds of a cut in September to over 90%.
The data has prompted 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 shift in the FED’s monetary policy comes amidst a backdrop of uncertainty and volatility in the global economy, with the trade war between the US and China continuing to cast a shadow over economic growth prospects.
While the FED’s potential rate cuts may help boost economic growth and provide relief to businesses and consumers, it also raises concerns about the impact on the bond market and the overall health of the economy in the long term. As investors and analysts closely monitor the FED’s decisions and the impact on financial markets, it is important for individuals and businesses to stay informed and adapt their financial strategies accordingly.
In conclusion, Moody’s analysis points towards a potential easing of FED policy in the near future, with interest rate reductions expected to begin as early as July. This move comes at a critical time for the US economy, as concerns about inflation and labor market strength continue to influence the FED’s decisions. As investors brace for potential changes in monetary policy, it is essential to stay informed and seek professional advice to navigate the evolving economic landscape successfully.
