S&P Global Ratings’ global chief economist, Paul Gruenwald, predicts that the US economy is likely to slow down in the coming years, resulting in a decrease in GDP growth. Due to this slowdown, Gruenwald expects the Federal Reserve (Fed) to potentially cut rates five times by 2025. This forecast suggests that the Fed may lower rates by two full percentage points as inflation cools.
Gruenwald believes that the US economy cannot sustain its current pace of growth indefinitely and anticipates that the Fed will implement three rate cuts in 2024 followed by up to five rate cuts in 2025. This prediction of a steeper monetary easing pace is more aggressive than what other economists are forecasting.
While there has been a recent surge in productivity and investment, Gruenwald anticipates that these factors will not be enough to maintain the current level of economic growth. Inflation is expected to inch closer to the Fed’s 2% target, providing justification for the central bank to begin cutting rates more significantly.
According to S&P Global, GDP expansion is projected at 2.5% by the end of 2024. However, Gruenwald emphasizes that it is crucial for the US economy to slow down gradually and believes that the Fed will proceed with a gradual rate reduction strategy.
Despite some upside risks such as potential increases in unemployment leading to more aggressive rate cuts by the Fed, Gruenwald still expects gradual rate reductions. On the other hand, some Wall Street forecasters believe interest rates may remain elevated for an extended period due to persistently high prices.
Economists have warned about inflation climbing even higher this year due to various factors such as supply chain disruptions caused by Covid-19 and geopolitical tensions. The recent AI-fueled stock market surge may also exacerbate financial conditions without assistance from central banks like the Fed.
In conclusion, Gruenwald’s prediction of potential interest rate cuts by up to five times by 2025 highlights concerns about a possible economic slowdown in the US. While there are some uncertainties regarding inflation trends and employment levels, it is likely that central banks like the Fed will continue with their gradual rate reduction strategy.
