Amid still-elevated inflation, the U.S. Federal Reserve Board will be cautious in easing monetary policy, says Fitch Ratings.
The rating agency issued its latest global economic outlook, which forecasts global GDP growth of 2.7% this year. That’s up a tick from Fitch’s previous call of 2.6%. The agency also hiked its U.S. growth forecast for 2024 to 2.5% from 2.1%, and raised its expectations for the U.K., Brazil and Russia.
However, in 2025, Fitch expects global GDP growth to slow to 2.5% as U.S. growth falls to 1.6% “on a fading fiscal impulse and a gradual slowdown in consumption, as household income decelerates.”
Additionally, the easing of U.S. monetary policy is expected to be slower and steadier than previous episodes of Fed easing, which won’t help growth much either.
Fitch currently expects a 25-basis-point rate cut from the Fed this month and another in December, with 125 bps worth of rate cuts coming in 2025 and another 75 bps in 2026.
“The long-awaited Fed easing cycle is upon us, but the FOMC will be cautious after the inflation challenges of the past few years. The pace of rate cuts will be gentle and monetary easing won’t do much to boost growth next year,” said Brian Coulton, chief economist at Fitch, in a release.
Notably, the rating agency said U.S. services inflation “is still too high to be consistent with inflation returning to target on a sustained basis.”
Fitch also noted that unemployment is rising gradually in the U.S. and in a number of other advanced economies.
“This mainly reflects a pick-up in labour supply rather than falling labour demand and we do not believe it signals the onset of recession. But labour market conditions are cooling,” the agency said. “This is easing pressures on wage inflation, at the margin, giving central banks more confidence to cut interest rates.”
Apart from the U.S., Fitch said it also expects China’s growth to slow to 4.5% in 2025 from 4.8% this year “as rapid export growth eases.”
In the eurozone, growth “has remained sluggish, but a rebound in real household income is on track and the saving ratio is unlikely to rise further,” Fitch said. It currently forecasts just 0.8% growth from Europe this year, rising to 1.5% in 2025.