Ratings agency Fitch said in a report that by historical standards, when the Federal Reserve begins cutting interest rates at its September policy meeting, its easing cycle will be “moderate.”
In its September Global Economic Outlook report, Fitch expects the central bank to cut interest rates by 25 basis points at its September and December meetings, followed by 125 basis points in 2025 and 75 basis points in 2026.
This would bring a total of 250 basis points of rate cuts over 10 moves over 25 months, Fitch noted, adding that in Fed easing cycles before the mid-1950s, the median rate cut from peak rates to trough was 470 basis points basis points, with a median duration of 8 months.
“One reason we expect the Fed to ease policy at a relatively moderate pace is that there is still work to be done on the inflation front,” the report said.
This is because CPI inflation is still higher than the 2% inflation target set by the Federal Reserve.
Fitch also noted that the recent decline in core inflation (excluding food and energy prices) mainly reflects a decline in automobile prices, which may not be sustained.
A report released by the Labor Department on Wednesday showed that U.S. inflation fell to its lowest level since February 2021 in August.
this consumer price index The annual growth rate in August was 2.5%, which was lower than the 2.6% expected by Dow Jones and the lowest increase in 3.5 years. From a month-on-month perspective, inflation rose 0.2% from July.
The core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose 0.3% for the month, slightly above expectations for a 0.2% increase. The 12-month core inflation rate remained at 3.2%, in line with forecasts.
Fitch also pointed out that “the inflation challenges faced by the Fed over the past three and a half years may also cause caution among Federal Open Market Committee members. It will take much longer than expected to suppress inflation, and central banks’ understanding of inflation has also changed.” Gap has been exposed.” What drives inflation. “
China is dovish, Japan is hawkish
In Asia, Fitch expects continued interest rate cuts in China, noting that the People’s Bank of China surprised market participants with a rate cut in July. People’s Bank of China Cut the 1-year MLF interest rate from 2.5% to 2.3% July.
“(Expected) interest rate cuts by the Federal Reserve and the recent weakening of the U.S. dollar have opened up some space for the People’s Bank of China to cut interest rates further,” the report said, adding that deflationary pressures in China were becoming entrenched.
Fitch noted that “Producer prices, export prices and house prices are all falling, and bond yields are also falling. Core CPI inflation has fallen to just 0.3%, and we have lowered our CPI forecast.”
China’s inflation rate is currently expected to be 0.5% in 2024, down from 0.8% in the June outlook report.
The rating agency expects China to cut interest rates by another 10 basis points in 2024 and another 20 basis points in 2025.
On the other hand, Fitch noted, “The Bank of Japan is bucking the global trend of policy easing and raising interest rates by more than we expected in July. This reflects its growing belief that reflation is deeply entrenched.”
Fitch said that with core inflation above the Bank of Japan’s target for 23 consecutive months and companies preparing to pay “sustained” and “appreciable” wages, the situation was completely different from the “lost decade” of the 1990s, when wages continued to rise. Failure to grow in deflation.
This is in line with the Bank of Japan’s goal of a “virtuous wage-price cycle” and enhances the Bank of Japan’s confidence that it can continue to raise interest rates to a neutral environment.
Fitch expects the Bank of Japan’s benchmark policy rate to reach 0.5% by the end of 2024 and 0.75% in 2025, adding, “We expect the policy rate to reach 1% by the end of 2026, higher than market expectations. If If the Bank of Japan becomes more hawkish, the consequences for the global economy may continue.
