Experts suggest US Fed may slow rate cut cycle in 2025
Date
12/18/2024 3:41:03 AM
(MENAFN) Experts suggest that the US Federal Reserve may slow its rate cut cycle in 2025, adopting a more cautious approach as President-elect Donald Trump assumes office in January. Bernd Weidensteiner, a US economist at Commerzbank, stated that the US Economy has outperformed expectations this year, effectively navigating a series of sharp rate hikes up until mid-2023. He emphasized that it is essential for the economy to preserve the gains achieved, as the Federal Reserve's goal has been to "cool" the labor market to prevent it from overheating, which would make it harder to meet the inflation target.
Weidensteiner noted that about 150,000 new jobs have been created monthly in 2023, although factors like storms and strikes have influenced this figure. The unemployment rate has gradually risen to 4.2 percent in November, half a percentage point higher than the previous year. He emphasized that while job growth has remained strong, the Fed must carefully consider the risks of further rate cuts, as these could hinder efforts to bring inflation down to target levels.
Despite the strong labor market performance, inflation has remained persistent. Weidensteiner highlighted that core inflation has remained relatively steady within a narrow range of 2.6 percent to 2.8 percent over the past six months, and the recently reported consumer price index (CPI) is still above the 2 percent target. This persistent inflation pressure suggests that the Federal Reserve will need to remain cautious in its rate decisions to avoid exacerbating inflationary risks.
Weidensteiner projected that the Fed would likely reduce its policy rate by 25 basis points in December, in line with market expectations. However, there is uncertainty about whether the Fed will continue cutting rates in early 2024. Depending on incoming economic data, the central bank may either slow the pace of cuts or pause them entirely, making the outlook for future rate changes less predictable.
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