Fed could cut rates by 25 bps in July, another 50 bps to follow in September: Moody’s
Moody’s expects the Federal Reserve 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 Fed funds rate to be reduced by a cumulative 50-75 bp in 2024 and another 100-125 bp through 2025.
The US Bureau of Labor Statistics reported that the headline Consumer Price Index (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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