The UK (Financial Times) team recently updated its forecasts for the Federal Reserve's interest rate outlook. Below is the full text.

Following a 50 basis point cut in September, we still believe the Federal Reserve will cut rates twice more in 2024 at a pace of 25 basis points each.

Since our most recent forecast, the September employment report and inflation data have come in significantly stronger than expected. Furthermore, the data showing weak employment growth over the past few months has been revised upwards, indicating that the previous view of the labor market slipping into recession was an illusion. Recently, rapidly changing retail sales data also shows that American consumers remain resilient, suggesting that consumer spending may continue to rise in the third quarter.

This new information has led some market participants to worry that the U.S. economy may experience a 'no landing' scenario, where the Federal Reserve fails to bring inflation down to target levels under the current policy settings and is ultimately forced to raise rates again. The market currently expects fewer than two remaining rate cuts in 2024, down from more than four a month ago.

We continue to expect the Federal Reserve will cut rates twice more this year. The September employment data continued the volatility in this series and is more likely just a strong month in the broader trend of a gradually loosening labor market. We are also pleased to see that housing inflation, a major structural reason for strong overall inflation growth, declined in September.

Nevertheless, we believe the risk of rate hikes is skewed upward. In addition to the neutral rate being higher than the Federal Reserve's expectations, making current policy settings potentially looser than rate setters believe, our long-term assessment of the Federal Reserve's interest rate path is also based on fiscal conditions similar to the present. However, as the likelihood of a Republican landslide in the November elections rises, the risk of the Federal Reserve tightening policy in response to next year's unrestrained fiscal expansion also increases.

Here are our expectations for the Federal Reserve's future rate cut path.

This November

We expect the Federal Reserve to cut rates by 25 basis points in November, bringing the benchmark rate down to 4.5-4.75%.

Although September's employment and inflation data suggest that the likelihood of larger rate cuts is low, a 'no landing' scenario is not our base case.

Current data still broadly aligns with the Federal Reserve's basic expectations—a gradual approach to anti-inflation—providing a basis for further rate cuts. Since the inflation data was released, several hawkish policymakers have publicly stated that accommodative policies should continue, but the pace should be gradual.

Overall, we still believe the Federal Reserve will cut rates again at this meeting. However, if the October employment report is very strong again, the Federal Reserve may choose to hold steady.

Before the end of this year

We believe the Federal Reserve will cumulatively cut rates by 100 basis points before the end of the year, bringing the funds rate down to 4.25-4.5%. This is consistent with the Federal Reserve's economic forecast summary from September. However, this projection is based on a fiscal outlook similar to today.

If inflation accelerates again in the coming months, or if the labor market maintains the strong momentum consistent with September's data, the Federal Reserve may halt interest rate cuts or only reduce rates by 25 basis points before the end of the year. This is the main risk we foresee.

If the labor market weakens rapidly in the fall, economic activity slows, and the risk of recession increases, the Federal Reserve will significantly loosen policy. However, given the strong performance of September's data, we believe the Federal Reserve will be unwilling to make significant rate cuts again before the end of the year.

First half of 2025

We believe that if Harris wins the U.S. presidential election, the Federal Reserve will cut rates three more times in the first half of 2025, each by 25 basis points, bringing the policy rate down to 3.5-3.75%.

The Federal Reserve's core belief is that the economy is on a path of gradually easing inflation and a gradually slowing labor market, and therefore it no longer needs restrictive monetary policy.

Given the current policy settings are far from policymakers' assessment of the neutral rate, we believe the Federal Reserve will front-load rate cuts before the first half of 2025. If it cuts rates three times in the first half of 2025, it will be just one cut away from a reasonable assessment of the neutral rate.

However, we believe there are two main risks that point toward a slowing pace of easing.

First, the Republican Party is poised for a landslide victory in the upcoming elections, enabling them to push through comprehensive fiscal expansion that matches tariffs. These policy decisions will lead to inflation and may prompt the Federal Reserve to cut rates at a slower pace.

The second risk is that the 'no landing' scenario becomes a reality, as monetary policy is not as tight as the Federal Reserve currently estimates. If inflation doesn't decline further and the labor market remains robust, the Federal Reserve's actions will lag behind our current expectations.

The Federal Reserve may also cut rates at each meeting in the first half of 2025, maintaining the benchmark rate at 3.25-3.5% by the end of June. If the labor market weakens sharply at a faster pace, this scenario could occur. However, current data does not indicate this possibility.

2025

We believe the Federal Reserve will cut rates a total of four times in 2025, each by 25 basis points, bringing the policy rate down to 3.25-3.5%. This is consistent with policymakers' latest assessments in the September dot plot.

This pace of rate cuts aligns with a gradual normalization of policy, with inflation trending down towards the 2% target, economic activity slowing, and wage growth decelerating as unemployment rises.

At the same time, this scenario also depends on whether fiscal policy continues on a path similar to today, where the Democrats control the White House and the Republicans control Congress, limiting the Democrats' ability to fully implement their fiscal agenda.

As for the scenario leading up to June 2025, as mentioned earlier, a Republican landslide or a U.S. economy facing a 'no landing' situation are the main risks we foresee. Both will lead to a higher benchmark rate by the end of 2025 than expected.

If the labor market significantly slows down in late 2024 or early 2025, the Federal Reserve's rate cuts may exceed our current expectations.

Long-term neutral rate

Our long-term interest rate forecast remains unchanged, expecting the neutral rate to be around 3.25%.

Article forwarded from: Jin10 Data