Fitch: US Inflation at 4.3% Limits Fed Rate Cuts Until Q4

Fitch Ratings has indicated that the unexpected weakening of the US dollar has provided global central banks with more leeway to implement easing measures. According to Fitch, the European Central Bank and emerging markets are likely to further reduce interest rates in response to the slowing global economy and the decline in commodity prices, including oil. This trend is expected to contrast with the actions of the Federal Reserve, which Fitch anticipates will delay rate cuts until the fourth quarter of the year. The report highlights that while the outlook for US economic growth is deteriorating, the inflation outlook is limiting the Fed's ability to ease monetary policy.

Fitch expects that the escalation of tariffs will drive the US inflation rate up to 4.3% by the end of the year, a significant increase from the previous forecast of 3.6%. This projection underscores the challenges faced by the Fed in balancing economic growth and inflation control. The report suggests that the Fed may need to wait until the fourth quarter to implement rate cuts, as the current inflation outlook restricts its policy options.

According to the analyst's forecast, the European Central Bank and emerging markets are expected to accelerate monetary easing in response to the slowing global economy and declining commodity prices. This contrasts with the Fed, which is anticipated to delay rate cuts until the fourth quarter due to the inflation outlook. The report emphasizes that the Fed's ability to ease policy is constrained by the need to manage inflation, which is expected to rise to 4.3% by the end of the year. This analysis highlights the divergent paths that global central banks may take in response to the current economic environment.