IMF: Fed to Cut Rates to 4% by 2025 as U.S. Growth Slows to 1.8%

The International Monetary Fund (IMF) has released its latest World Economic Outlook report, which includes projections for significant changes in global economic growth and monetary policy. According to the report, the Federal Reserve is expected to lower its benchmark interest rate to 4% by the end of 2025. This projection comes amidst a backdrop of policy uncertainty and trade tensions, which are expected to slow U.S. economic growth to 1.8% in 2025, a decrease of 0.9 percentage points from the January forecast.

The IMF's report highlights the challenges facing the U.S. economy, including inflationary pressures and the potential for further economic slowdowns. The Federal Reserve's current federal funds rate stands at 4.5%, and the IMF's projections suggest that further rate cuts are likely in the coming years. The Fed's decision to lower interest rates is part of a broader strategy to support economic growth in the face of these challenges. By reducing the benchmark interest rate, the Fed aims to stimulate borrowing and spending, which can help to boost economic activity. However, the Fed must also be mindful of the potential for further inflationary pressures, which could undermine the benefits of lower interest rates.

The IMF's report also underscores the broader economic challenges facing the global economy. The organization predicts that global economic growth will stall by 0.5% in 2025, with a further downgrade of 0.1% in 2026. This slowdown is attributed to a variety of factors, including trade tensions, inflationary pressures, and the lingering effects of the pandemic. The IMF's projections underscore the need for coordinated global efforts to address these challenges and support economic recovery.

In response to these economic conditions, the European Central Bank is also expected to lower its benchmark interest rate to 2% by mid-2025. This move, along with the Federal Reserve's expected rate cuts, reflects a broader trend of central banks adjusting monetary policy in response to economic challenges. The IMF's report highlights the importance of coordinated efforts to address these challenges and support economic recovery. Policy shifts and deteriorating sentiment could trigger further asset repricing, leading to significant exchange rate adjustments.