Federal Reserve Corrects June Inaction
BearBull Global Investments Group (DIFC)
BearBull Global Investments Group is a leading independent Swiss wealth advisory firm based in the DIFC
In this article, our Group Chairman, Alain Freymond, and Group CEO, Ahmad Saidali, provide valuable insights on the recent monetary policy shifts by the Federal Reserve, highlighting the implications of rate cuts and the anticipated economic trajectory leading up to 2025.
Another six rate cuts before the end of 2025
By lowering its rates by 50 basis points, it decides to erase its last two hikes from May and July 2023. However, it implicitly acknowledges that it might have already acted with a first 25 basis point cut in June. The monetary easing cycle is now underway, and the median projection of the FOMC Dots for the end of 2025 has consequently been lowered to 3.375. This target suggests approximately six rate cuts over the next fifteen months.
On the Fed Funds side, the implied rate for the end of December 2024 at 4.32% has already been lowered to 3.25% for the end of June 2025. Without major surprises and maintaining a scenario of a moderate slowdown in American growth still above +2% annualized over the next three quarters, we estimate that the market is already anticipating six rate cuts before June 2025. The U.S. central bank has thus set a new path of rate cuts for 2025 towards an estimated target between 3.25% and 3.5%.
A few months ago, the Fed Chair had emphasized that he was ready to loosen the reins of his policy if the evolution of inflation parameters allowed it and if the labor market showed signs of slowing down, which is now the case. He also mentioned that he would not wait to see inflation fall below his technical target of +2% and would implement the expected easing in that case. This is also the situation since inflation is indeed sliding but has not yet reached the +2% threshold.
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We estimate that the Federal Reserve will lower its key rates once again by a standard increment of 0.25% on November 7, the day after the U.S. presidential elections. It is still a good time to extend the durations of U.S. dollar bond segments as ten-year Treasury yields are once again above 4%.