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Informist, Tuesday, Jul 16, 2024

 

--Moody's: US Fed could cut rates by 25 bps in Jul meeting 

--Moody's: Expect US Fed to cut interest rates by 50-75 bps in 2024 

--Moody's: Expect US Fed to cut rates by another 100-125 bps in 2025 

--Moody's: US labour mkt to weaken more if Fed holds rates in Jul meet 

 

MUMBAI – The US Federal Reserve could ease the interest rate by at least 25 basis points at the upcoming Federal Reserve Open Market Committee meeting, scheduled for Jul 30-31, Moody's Ratings said in a report.

 

A softer-than-expected June CPI inflation print and a slowdown in the labour market have accentuated bets of advancement in the beginning of a rate cut in the world's largest economy, the report said.

 

The pace at which the US labour market has cooled suggests that tight monetary policy could hurt the growth of the market. If the FOMC decides to hold the federal funds rate at the current 5.25-5.50% at its July meeting, the labour market will likely weaken further, raising the chance of a larger 50 bp cut in September.

 

The CPI inflation fell 0.1% in June from May and was 3% higher on an annual basis. The market had expected inflation at 3.1% in June. The annual core CPI, which excludes volatile food and energy prices, rose 3.3%.

 

By the end of 2024, the US Fed is likely to cut the interest rate by 50-75 bps and by the end of 2025, the interest rate is likely to see a 100-125 bps cut, the report mentioned. 

 

"Although the June CPI data confirm that the downward trend in inflation remains in place, several alternative measures of price pressures signal that underlying inflation is already at the Fed’s 2% target," the report stated.

 

With consumers becoming "price conscious", disinflation is likely to creep into goods and services belonging to the sub-category. Disinflationary momentum was broad-based in June as moderating demand for goods, housing, and non-housing services pushed core inflation lower. 

 

Meanwhile, freight rates have gone up about 300% compared with the year ago amid ongoing tensions in West Asia and US importers frontloading goods orders. However, this may not lead to higher inflation because retailers' ability to raise prices is limited due to today's price-sensitive consumers and is likely to persist in the current cooling economic environment.

 

Benign inflationary pressures and slowing down in the labour market have strengthened the case for the Fed to cut rates.  End

 

Reported by Anupreksha Jain

Edited by Akul Nishant Akhoury

 

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