Three Factors Boosting the Case for Multiple Rate Cuts in 2025, Says $5 Trillion Asset Manager

As the global economy navigates through 2025, a $5 trillion asset manager has identified three key factors that could bolster the case for multiple rate cuts by the Federal Reserve. These factors, supported by data and expert insights, highlight the potential for a more accommodative monetary policy stance in the coming year.



1. Recession expectations and soft landing: The Natixis Investment Managers survey of institutional investors shows that 71% of US respondents expect a "soft landing" in 2025, indicating a lower likelihood of a recession. This optimism aligns with the current economic landscape, where fears of a recession have subsided compared to the previous year. A soft landing scenario would allow the Fed to maintain a more accommodative monetary policy, potentially leading to multiple rate cuts in 2025.
2. Inflation targets and Fed independence: Most US investors (73%) anticipate that inflation targets will be achieved in 2025. This expectation is supported by the Federal Reserve's progress in navigating a soft landing and the subsiding of recession fears. The Fed's independence and the extension of the Tax Cuts and Jobs Act (TCJA) provisions are expected to contribute to a stable economic environment, allowing for a gradual pace of rate cuts in 2025.
3. Economic growth and government spending: Real GDP growth is expected to reach 2.8% in 2024 and 2.4% in 2025, supported by a strong economy, federal deficit, and government spending. This growth trajectory, coupled with a relatively tight labor market and stronger inflation-adjusted wage growth, could support aggregate consumer spending and business investment. A robust economic outlook could encourage the Fed to maintain a more accommodative monetary policy, potentially leading to multiple rate cuts in 2025.

These specific economic indicators and trends support the case for multiple rate cuts in 2025, as they align with the current economic landscape and the expectations of institutional investors. However, it is essential to consider the potential implications for investors and the broader economy.

For investors, multiple rate cuts in 2025 could lead to lower borrowing costs for businesses, potentially boosting corporate earnings and stock prices. However, lower interest rates may also lead to a decline in bond yields, which could negatively impact bond investors. Additionally, a more accommodative monetary policy could lead to a stronger US dollar, which might negatively affect multinational corporations and their earnings.

In conclusion, the $5 trillion asset manager's outlook for multiple rate cuts in 2025 is supported by three key factors: recession expectations, inflation targets, and economic growth. These factors align with the current economic landscape and the expectations of institutional investors. However, the potential implications for investors and the broader economy should be carefully considered when evaluating the case for multiple rate cuts in 2025.