The US interest rate-cutting cycle in the US could begin with a 25-basis-point cut at the Federal Open Market Committee’s next meeting, in September; or this is the prediction made by S&P Global in its latest report.
The firm believes the recent loosening of the US labour market indicates a normalisation, as opposed to being a sign that the world’s largest economy is headed for a recession.
According to the establishment survey, the US economy added 114,000 nonfarm jobs in July, well below the consensus expectation of 175,000. During this month, private
payrolls rose 97,000, with most of the gains concentrated in health care and social assistance (64,000), construction (25,000), and leisure and hospitality (23,000). Looking at the three-month average basis, the US economy is adding more than 170,000 jobs per month.
The report added that “progress against inflation and the normalisation of the labor market are likely enough for the [US] central bank to start dialing back its tight stance on monetary policy”.
The firm continues to forecast a total of 125 basis points of rate cuts between the start of the fourth quarter of this year and year-end 2025. S&P belives the federal funds
rate is ikely to fall to 3.75%-4% by the end of 2025 from the current range of 5.25%-5.5%, with 50 basis points of cuts coming this year and another 100 basis points of cuts in 2025.
“The economy is transitioning to a period of below-trend growth, and the broader disinflationary trend that started last year should continue despite being thrown off its course in the first quarter,” the report states.
Nonetheless, the firm continues to think the probability of a recession starting within the next 12 months remains elevated, at 25%-30%, twice the unconditional probability of recession (baseline comparison) since World War II.
