(Finance) – The prate cuts wave of interest to the Federal Reserve US in this cycle of monetary policy easing will likely be still modest compared to historical episodes rate cuts, despite a larger-than-expected cut at last week’s FOMC meeting, Fitch Ratings said, now expecting the rate to fall to 4.5% by the end of this year and 3.5% by the end of 2025, and then to a neutral level of 3.0% by June 2026.
According to the rating agency, the the scale of the move was difficult to justify based on incoming economic data, with basic services CPI inflation remaining elevated at 4.9% year-on-year in August and rising to 0.4% month-on-month.
The decision appears to partly reflect a “risk assessment” element in response to recent labor market dynamics, where the unemployment rate rose to 4.2% in August from 3.7% in December 2023. While the Fed’s latest forecasts show unemployment remaining low, Fed Chair Jerome Powell made numerous references at the post-meeting press conference to the risk that unemployment could – unexpectedly – continue to rise.
Fitch expects the Fed to cut rates by 25 basis points at both its meetings November what of Decemberfollowed by four further 25 basis point cuts in 2025with rates lowered at every other FOMC meeting next year.
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