According to S&P Global Ratings’ global chief economist, Paul Gruenwald, the Federal Reserve could potentially lower interest rates up to five times in 2025. This prediction is based on the expectation of a slowing US economy, giving the Fed the opportunity to cut rates amidst cooling inflation. This would mean a total decrease of 2 percentage points in interest rates.
Gruenwald believes that despite productivity and investment in the US have been strong this year, the economy will inevitably slow down. He projects that as growth starts to decline in the second half of the year, the Fed will respond by gradually lowering interest rates. The aim is to maintain a “slower-for-longer” approach as the economy recalibrates.
Despite some Wall Street analysts warning of prolonged high interest rates due to stubbornly high prices, Gruenwald’s forecast aligns with the expectation of Fed continuing to cut rates gradually. The unexpected acceleration of consumer prices in February and the potential for inflation to rise further this year present challenges, but could also provide opportunities for the Fed to intervene. If the labor market weakens significantly and unemployment rises, the Fed may need to cut rates more aggressively than currently anticipated.