S&P "US Interest Rate Cuts Starting June... Will Lower by 0.75%P This Year"

International credit rating agency S&P Global Ratings forecasted that the U.S. Federal Reserve (Fed) will begin cutting the benchmark interest rate starting in June. The total rate cut for this year is expected to be 0.75 percentage points.

In its U.S. economic outlook report released on the 21st (local time), S&P projected that the Fed will lower the benchmark interest rate from the current 5.25?5.50% by 0.25 percentage points in June, and then reduce it by a total of 0.75 percentage points within the year. After the first rate cut in June, the Fed is expected to cut rates three times in total, by 0.25 percentage points each in the third and fourth quarters. This aligns with the Fed's dot plot forecast indicating a 0.75 percentage point cut within the year. However, it falls short of the market expectation of around 1 percentage point.

S&P presented the U.S. economic growth rate for this year at 2.4%. This is a significant upward revision from the November forecast of 1.5%, reflecting stronger-than-expected economic indicators. The U.S. economy grew by 2.5% last year based on preliminary data. S&P stated, "This reflects the stronger-than-expected growth in the fourth quarter of 2023 and the robust labor market conditions last month," and predicted that "the economy will undergo a cyclical adjustment period below the trend growth rate in the latter half of this year."

Meanwhile, the minutes of the January Federal Open Market Committee (FOMC) meeting released by the Fed on the same day confirmed a cautious stance to maintain the current interest rate until a clear slowdown in inflation is confirmed. As the Fed expressed caution about early rate cuts, market sentiment is leaning toward rate cuts in June or July. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market currently prices in over a 60% probability that the Fed will cut rates by at least 0.25 percentage points at the June FOMC meeting. The expectation that the current rate of 5.25?5.50% will be maintained until July stands at just over 11%.