US Federal Reserve on Course to Cut Rates Twice in 2024, Says S&P Global Market Intelligence

US Federal Reserve on Course to Cut Rates Twice in 2024, Says S&P Global Market IntelligenceThe US Federal Reserve is on course to make two pivotal cuts to interest rates in 2024 that may have an effect on the wider US economy. First cut is expected later this month, and another in December 2024, according to S&P Global Market Intelligence. Those would be the first steps in a gradual policy-easing course for the Fed as it balances an economy recovering from the pressures of inflation and a tight labor market.

We do an in-depth analysis of what motivated such a decision on the part of the Fed, the timing factor, and what kind of economic effect these imminent cuts may have.

The September 2024 Federal Reserve Meeting: The Moment of Truth
The next policy-setting meeting of the Federal Reserve is scheduled for September 17-18, 2024, and a vital decision by the central bank is being expected by market analysts, economists, and investors. The Fed, which has aggressively raised interest rates in the last two years as it battled high inflation, is expected to shift gears with a rate cut for the first time in 2024.

In a note, Ben Herzon, senior US economist with S&P Global Market Intelligence said that the FOMC would likely issue the first of two planned rate cuts in September: “We expect two rate cuts this year-this month and again in December-as the Federal Reserve begins the process of easing policy gradually before cutting rates at every meeting beginning in the second quarter of next year,” Herzon said.

Why the Federal Reserve Is Cutting Rates
The cutting of interest rates by the Federal Reserve in upcoming months is convincing for a number of reasons. Of these, the first is the ever-changing state of the US labor market. Whereas the unemployment rate has generally shown a very low rate since the pandemic, upwards ticks have started to arrive. The job openings rate has fallen back to pre-pandemic levels, while wage inflation-which was one of the large drivers of overall inflation-has been slowing.

These developments reflect the cooling of the labor market, which, in turn, reduces inflationary pressures. Herzon believes that the Fed has taken notice of these trends and is ready to ease its policy to prevent a sharper slowdown of economic activity.
Conclusion
The Gradual Approach to Easing Monetary Policy
While the Fed’s policy adjustment-issuing two rate cuts in 2024-will just be the first salvo of this longer-term strategy, S&P Global Market Intelligence does predict that following the December cut, the Fed will move to continue cutting rates at every meeting beginning in Q2 2025. In this way, the central bank can balance its concerns about slowing growth with the need to keep inflation in check.

It also projects the US economy will post a 2.6% GDP growth in 2024, while 2025 posts 1.8%. The forecast of 2.6% is still in place from last month’s projection, but a meager upward revision in the growth forecast for 2025 pegs cautious optimism on the outcomes of monetary easing.

Impact of Rate Cuts on the US Economy
Most times, whenever there is a cut in the federal funds rate, the ripple effects are observed across nearly all other domains of the economy: from consumer loans to business investments, it generally cuts the cost of borrowing and boosts economic activities. Here’s how different sectors might react to the 2024 rate cuts:

Lower Borrowing Costs for Consumers
An instantaneous effect of any interest rate reduction is on consumer borrowing costs. Expect lower rates on mortgages, auto loans, and personal loans-which could, in turn, spur households to take on new debt or refinance outstanding obligations. This could reflect itself in a modest rise in consumer spending, a highly important force in the US economy.

Business Investment and Economic Growth
It also lowers the interest rates on loans, which, in turn, assists businesses through reducing the cost of financing new projects and equipment, business expansion, and other capital expenditures. Companies could ramp up their capital expenditures-boosting productivity and possibly hiring more workers-if borrowing became cheaper. In that case, this might equate to some of the slowdown in the labor market and avoid the increase in unemployment.

Housing Market Stability
This industry, in particular, is bound to benefit from the rate cut decision that the Fed made with high interest rates straining the housing market in the past two years. The lower mortgage rates might accelerate demand for home purchases, finally bringing relief to potential homebuyers who have been facing affordability challenges. Even the homebuilders are likely to get busy once again, hence contributing to overall economic growth.

Jerome Powell’s Signals at Jackson Hole
Federal Reserve Chair Jerome Powell, in his address at the Jackson Hole Symposium in August 2024, provided some rare hints with respect to interest rates. Though Powell did not commit to a rate cut, he did say it was time for the Fed to start adjusting its policy. His comments support broader market expectations of easier monetary policy in the near future.

The Fed embarked on a spate of aggressive rate increases during the COVID-19 pandemic to combat record-high inflation. It hiked rates cumulatively 525 basis points between 2022 and 2023, taking the federal funds rate to its highest level in years. With inflation now more in tune with the Fed’s target of 2%, policymakers are ready to transition from a restrictive stance into an accommodative policy.

Looking Ahead: What to Expect in 2025
S&P Global Market Intelligence projects that, beyond these two rate cuts in 2024, the Fed will still further ease monetary policy into 2025-at every FOMC meeting beginning in Q2. Supposedly, this would be gradual and measured to see the US economy through transition without allowing inflation to resurge.

Although the exact timing and the pace of those cuts will depend on incoming data, recent developments suggest that the pace between growth and price stability is appropriate. If the labor market weakens more, or if the inflation disappoints, the Fed may be forced to accelerate the timeline of rate cuts.

Conclusion: Implications of Fed’s Rate Cuts
These cuts to the Federal Reserve rate represent a critical shift for US monetary policy, as the central bank starts to pivot from ultra-restrictive measures that have marked the post-pandemic economy. These cuts will, no doubt, shape the trajectory of the US economy over the next two years.

With S&P Global Market Intelligence projecting a continuance of rate cuts action well into 2025, the US economy is likely to see reduced borrowing costs, increased business investment, and a more stable housing market. However, the pace of recovery is dependent upon a range of labor market conditions, including wage inflation and global economic conditions.

But for now, one thing is certain-the investment world, including economists, will continue to pay close attention to Federal Reserve policy decisions for further signs that