Wells Fargo sees aggressive Fed easing, maintains GDP outlook

On Monday, Wells Fargo released an update on its global economic forecasts, maintaining its projection for 2024 global GDP growth at 2.9% and global CPI inflation at 3.6%. The firm continues to anticipate a "soft landing" for the United States economy but recognizes that the risks of a recession are on the rise.

Wells Fargo's outlook for Europe remains positive, expecting the economic recovery to persist. The bank has also retained its 2024 GDP growth forecast for China at 4.8%, despite the country's ongoing economic slowdown.

A significant revision in the bank's forecast involves the Federal Reserve's monetary policy. Wells Fargo now predicts that the Fed will reduce interest rates more aggressively than previously thought.

The firm forecasts a 50 basis points (bps) cut in September, followed by an additional 50 bps reduction in November. This adjustment is based on the expectation that the Federal Open Market Committee (FOMC) will start an easing cycle in September.

The revised forecast also suggests implications for other central banks. Wells Fargo believes that the anticipated faster pace of Fed easing could allow foreign central banks, like the Bank of Canada, to also lower rates more quickly.

Conversely, the Bank of Japan is now expected to postpone further rate increases until 2025, while the Brazilian Central Bank is predicted to reverse course and raise rates in the near term.

Wells Fargo's short-term outlook for the U.S. dollar remains largely unchanged, with the expectation that the dollar will continue to rise through the end of this year. However, there are notable adjustments in the medium to long-term projections. The bank now believes that the dollar will strengthen in the second half of 2025, revising its previous forecast which anticipated a depreciation of the greenback.

This longer-term outlook change is attributed to the Fed's front-loaded easing, while other international central banks are expected to maintain an easing stance through the end of the next year.

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Source: Investing.com