Jerome Powell, the head of the Federal Reserve (Fed), has emphasized the Fed’s commitment to supporting the economy in a recent statement. According to S&P Global Ratings’ global chief economist, Paul Gruenwald, the Fed could potentially lower interest rates up to five times in 2025 in response to a slowdown in the US economy.
Gruenwald predicts that if inflation continues to cool down, the Fed could lower rates by a total of 2 percentage points. He believes that the US economy cannot sustain its current high level of growth indefinitely and anticipates that the Fed will issue three rate cuts in 2024 followed by up to five rate cuts in 2025. Despite an increase in productivity and investment this year, Gruenwald predicts that a slowdown in the economy is inevitable.
According to S&P Global forecasts, by the end of 2024, GDP growth will be around 2.5%. However, with growth expected to slow down in the second half of the year, Gruenwald suggests that a forecasted slowdown is inevitable for the US economy. While there are risks that could lead to more aggressive rate cuts, such as a significant increase in unemployment or geopolitical tensions, Gruenwald still expects the Fed to lower rates gradually.
Despite some concerns among economists about high prices persisting for longer periods, Gruenwald believes that inflation will eventually return to normal levels. This outlook contrasts with predictions from other Wall Street analysts who are concerned about inflationary pressures building up over time due to supply chain disruptions and labor shortages. Nonetheless, Gruenwald expects that as long as inflation remains within reasonable levels and economic conditions remain stable, he does not see any major changes coming from central bank policies.
In conclusion, while it is difficult to predict exactly how much interest rates will drop or how long it will take for them to do so, it is clear that Jerome Powell and his team at the Federal Reserve are committed to supporting economic growth through policy actions such as rate cuts when necessary.
