(MENAFN- Gulf Times) QNB said in its weekly commentary that it expects the US Federal Reserve to continue its monetary easing cycle at a moderate pace by cutting the federal funds rate two more times to 3.5 percent.

The bank said that declining employment levels and a drop in capacity utilization below trend justify continued reductions in key interest rates, while the limited likelihood of a sharp slowdown in growth creates an appropriate lower bound for interest rates near their neutral levels.

QNB noted that the Federal Reserve has returned to the forefront of the global macroeconomic scene after a period dominated by US-led trade negotiations and debates over fiscal policies. It explained that uncertainty surrounding economic policies has eased significantly thanks to the conclusion of several trade agreements and the adoption by President Donald Trump's administration of a less contentious fiscal framework.

Uncertainty related to inflation has also receded, after it became clear that the impact of higher tariffs on prices was smaller than expected.

The report stated that monetary policy has become a point of contention. The Federal Open Market Committee (FOMC) of the Federal Reserve cut interest rates by an additional 25 basis points late last month, continuing the easing cycle that began in September 2024 and resumed this year after an eight-month pause. However, a clear division has emerged among committee members.

The report observed a widening gap between market expectations and policymakers' positions regarding the future direction of interest rates. While markets expect the easing cycle to continue, Federal Reserve Chair Jerome Powell said that additional rate cuts remain uncertain.

The bank argued that under these expectations, there is room for two more 25-basis-point rate cuts, likely with the first in December and the second in early 2026.

The report based this outlook on two main points. The first is that there remains sufficient room for two additional rate cuts because current interest rates are still excessively tight relative to existing macroeconomic conditions in the United States.

It pointed out that the current interest rate of 4 percent remains restrictive and stands roughly 50 basis points above the neutral level, while data on capacity utilization, the labor market, and industrial activity show that the U.S. economy is operating below its potential.

The second point, according to the report, is that there is room for further monetary easing. It noted, however, that the deeper rate cuts supported by more dovish Federal Reserve members, and anticipated by markets, appear overly aggressive.

In conclusion, QNB's weekly report emphasized that the US economy has largely adjusted, slowing from growth rates near 3 percent in 2023 and 2024 to about 2 percent this year, without signs of a sharp downturn or possible recession. It highlighted the strength of investment driven by record capital spending from technology companies seeking to lead the artificial-intelligence wave, while consumption continues its gradual slowdown and US households benefit from their strongest net financial position in decades. QNB Qatar economy

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