The Fed’s recent decision to cut interest rates by 25 basis points has sparked debate among leading economists about the path monetary policy will take over the next two years.
The move, expected by many on Wall Street, could signal the beginning of a steady cycle of interest rate cuts, with some experts predicting cuts at every Federal Open Market Committee (FOMC) meeting through September 2025.
Luke Tilley, chief economist at Wilmington Trust and former economic advisor to the Philadelphia Fed, believes the Fed will take an aggressive approach to rate cuts due to the softening in the labor market and the slowdown in economic growth. “Private nonfarm employment growth has slowed significantly, averaging just 108,000 over the past six months,” Tilley said. He predicts that the Fed will lower interest rates consistently until reaching a neutral stance by the end of 2025.
While Tilley predicts aggressive rate cuts, Janney Montgomery Scott’s head of fixed income, Guy LeBas, offers a more cautious perspective. According to LeBas, as inflation expectations for 2025 continue to remain high, the FED may slow down the pace of interest rate cuts. “The central trend for core personal consumption expenditure inflation is currently between 2.5% and 2.7%, indicating a less aggressive trajectory,” LeBas said.
Market pricing reflects this uncertainty, with expectations for three rate cuts in 2025. But LeBas argues that the Fed’s approach will likely become more measured, with cuts occurring at a slower pace (potentially once every quarter) through 2025.
Economists also weighed the risks of the Fed’s strategy. Tilley emphasized that maintaining high interest rates for too long could hinder economic recovery. “Real yields are still high compared to the past decade and are acting as a brake on the economy,” he warned. In contrast, LeBas advocated gradualism in the face of fiscal uncertainty, especially with potential policy changes expected under a new administration in 2025.
But as the labor market continues to weaken and inflationary pressures ease, the central bank’s approach may change. Tilley strengthened the expectation of more aggressive cuts, saying, “Inflation is falling despite strong growth, driven by productivity gains and labor force expansion.”
*This is not investment advice.
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Source: https://www.bitcoinsistemi.com/herkes-fedin-faiz-indirimlerine-ara-vermesini-bekliyor-ancak-bu-ekonomist-asil-olacagini-dusundugu-seyi-acikladi/
