The Fed is expected to start cutting interest rates, hoping to stimulate economic growth

From Morningstar: 2024-07-22 06:21:00

Since July 2023, the Federal Reserve has maintained the federal-funds rate at 5.25%-5.50%, with projected cuts expected to bring it to 1.75%-2.00% by 2026. The Fed’s actions are driven by downward inflation trends and slowing GDP growth, leading to elevated unemployment until 2027.

With interest rates at pre-2000 levels, the economy faces higher borrowing costs. Mortgage rates have soared, hitting 6.9% in July 2024. Despite fears of a recession, the economy remains resilient, with rate hikes mitigated by an inverted yield curve stimulating long-term borrowing and inflation falling due to supply improvements.

Forecasting Fed rate cuts starting in September 2024, bringing rates to 1.75%-2.00% by 2026. Inflation expectation is a drop to 2.4% in 2024, with no recession. Disagreeing with cautious market predictions, substantial rate cuts are anticipated due to inflation progress and induced economic acceleration by lower borrowing costs.

Anticipated GDP growth acceleration in 2025, peaking in 2026-2027, alongside easing cuts. Supply constraints resolution will spur economic growth without reigniting inflation concerns. Fed enacted rate cuts aim to steer the economy towards sustained growth beyond 2027, marking a significant shift in monetary policy.



Read more at Morningstar: When Will the Fed Start Cutting Interest Rates?