Analysts see US Fed focused on soft landing
Make us a preferred source
Make us a preferred source on Google
The news: Economists and analysts expect the Federal Reserve to continue rate cuts through next year as it focuses on a soft landing for the US economy, which could boost risk assets further.
The numbers: The Federal Reserve overnight cut interest rates by 50 basis points (bps) to 4.75% to 5.0% — a larger-than-usual reduction that is expected to kick off a steady easing of monetary policy.
The context: Fed chair Jerome Powell said the US central bank's forecast for the path of interest rates did not imply the need for urgent action, but economists see the rate cut as hawkish, and expect further easing in 2025.
What they said: “Whereas the vast majority of the committee see the Fed funds rate only 25bps to 50bps below the current level by end-2024, the December projections for 2025 through 2027 are spread across a 150bp range. To us, this speaks to considerable uncertainty over how the balance of risks will evolve,” Westpac’s head on international economics Elliot Clarke said.
Franklin Templeton senior market strategist, Rick Polsinello, said: "Worth keeping in mind that Fed funds being in the range of 5% is relatively high from a historical perspective, and assuming we’ve avoided recession and are headed for the soft landing, more cuts will be coming and the dot plot showed they expect rates to move lower by 100 basis points in 2024 and also another 100 basis points in 2025".
Principal Asset Management chief global strategist, Seema Shah, said: “From an investor perspective, the key takeaway from today’s decision is that this Fed will go to historic lengths to avoid a hard landing. With a sequence of rate cuts on the way, recession risk has collapsed. This is a great sign for risk assets”.
Treasurer Jim Chalmers said the Reserve Bank must consider the US announcement in its monetary policy decisions.
“What we've seen in Australia is inflation has come off really considerably, it is still more persistent than we'd like, but we're making good progress, and we'll learn more about that progress in the middle of next week,” he said in a TV interview.
The sources: Westpac research, Franklin Templeton, Principal Asset Management, Treasury
