Paris Bank Forecasts Two Fed Rate Cuts in 2025 Amid Easing Signals

Paris Bank has revised its Federal Reserve rate forecast, now anticipating two 25-basis-point rate cuts in 2025—scheduled for September and December—marking a shift from its earlier view that no rate cuts would occur before 2025 [1]. This forecast aligns with updated expectations from other market participants, including Barclays, which also now projects two rate cuts in the same timeframe, previously forecasting only one in December [1].

The pivot toward rate cuts has been influenced by recent comments from Fed Chair Jerome Powell, who suggested during a public speech that policy adjustments may be warranted to support the economy amid cooling inflation and a softening labor market [2]. Market pricing has already begun to reflect this shift, with the overnight index swap (OIS) market assigning a near 90% probability to a 25-basis-point cut in September [4]. Similarly, traders are currently pricing in an 80% chance of a September cut [2], reinforcing the growing consensus for monetary easing.

Former Fed officials have also contributed to this narrative. James Bullard, the ex-president of the St. Louis Fed, noted that the market is trending toward a 25-basis-point cut in September [3], echoing broader sentiment among analysts and investors. These signals indicate that the Fed may be moving away from its recent tightening bias toward a more accommodative stance, although no explicit confirmation has yet been given by the central bank.

Paris Bank’s updated forecast highlights a broader shift in both central bank policy and investor behavior. Financial markets have already begun reacting, with stocks rising as investors reposition portfolios in anticipation of lower borrowing costs [5]. While the Fed has not committed to a timeline for rate cuts, Powell has emphasized a data-dependent approach, suggesting that the central bank will continue to monitor economic indicators before making any decisions [7].

The expected rate reductions are also part of a wider global trend. Other central banks, such as the Reserve Bank of New Zealand, have signaled their intention to ease monetary policy. Westpac, for instance, has forecast a 25-basis-point cut in its upcoming meeting [6], underscoring that the U.S. may not be an outlier in this shift toward accommodative policy.

However, it is important to distinguish between market expectations and official policy outcomes. While the consensus is strong for rate cuts, the actual decision rests with the Federal Reserve, which has maintained a cautious and measured approach. Investors and market participants will be closely watching the September 17 policy meeting for confirmation or refutation of the current market consensus [8].

The implications of these anticipated cuts could be significant for both financial markets and the broader economy. Easier monetary conditions may support economic activity by encouraging borrowing and investment, but they also carry the risk of reigniting inflation. The Fed will need to balance these competing concerns as it navigates the path forward.

Source:

[1] https://www.theblockbeats.info/en/flash/309041

[2] https://www.marketscreener.com/news/dollar-struggles-to-recover-from-dovish-powell-gut-punch-ce7c50dbdf81f42c

[3] https://www.aol.com/news/france-summons-us-ambassador-over-210627750.html

[4] https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/weekly-economic-watch.pdf

[5] https://www.msn.com/en-ca/money/markets/stocks-climb-as-investors-bet-on-rate-cut-following-powell-speech/ar-AA1L2EDw

[6] https://www.westpaciq.com.au/

[7] https://www.arabnews.com/node/2612799/business-economy

[8] https://www.creditandcollectionnews.com/feds-jerome-powell-opens-door-to-resume-us-interest-rate-cuts/