Fed could cut rates by 25 bps in July, another 50 bps to follow in September: Moody’s
The agency anticipates a reduction in the Federal Funds rate by a cumulative 50-75 basis points in 2024, followed by an additional reduction of 100-125 basis points throughout 2025. According to the US Bureau of Labor Statistics, the headline Consumer Price Index (CPI) decreased by 0.1% in June.
According to its latest analysis, Global ratings agency expects the to begin policy easing with a 25 basis points (bps) cut as early as in the 30-31 July meet.“The CPI data confirms our view that the hotter-than-expected inflation prints in the first quarter were from one-time price adjustments at the start of the year. The rapidity with which the labour market has cooled suggests that the drag from tight monetary policy is growing. If the Federal Open Market Committee decides to hold the federal funds rate at the current 5.25-5.50% in the July meeting, the labour market will likely weaken further, raising the chance of a larger 50 bps cut in September,” said Madhavi Bokil, Senior Vice President at Moody’s Ratings.
The agency expects the funds rate to be reduced by a cumulative 50-75 bp in 2024 and another 100-125 bp through 2025.
The reported that the headline (CPI) declined 0.1% in June, while core CPI rose a softer-than-expected 0.1% (0.78% annualised) — its smallest gain in over three years and the shelter inflation adjusted down to pre-pandemic norms.
Together with data showing a significant cooling in the labour market, all the conditions for the Federal Reserve to begin monetary policy normalisation are in place.
Although the June CPI data confirm that the downward trend in inflation remained in place, several alternative measures of price pressures signal that underlying inflation is already at the Fed’s 2% target.
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Moody’s believes that the annual inflation will continue to drift down in months to come aided by moderating demand, a cooling labour market, modest business inflation expectations, and disinflationary pressures from lower-shelter inflation, auto insurance rates and vehicle prices.
The softer inflation data came on the heels of various job market indicators showing that the labour market has already come into balance, and continues to loosen. These include downward revisions to previous months' nonfarm payroll employment gains, normalised quits and hires rates and easing nominal wage growth.
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Source: Stocks-Markets-Economic Times
