DWS: It is expected that the Federal Reserve will slow down the pace of interest rate cuts after the December meeting, and future fiscal and trade policies remain major unknown factors
DWS Chief U.S. Economist Christian Scherrmann stated that the Federal Reserve is expected to slow down the pace of interest rate cuts after the December meeting, despite persistent inflation and mixed economic data. The latest CPI data shows a slowdown in price increases, but there has been progress in controlling inflation. Future fiscal and trade policies remain major unknowns, and households and businesses may anticipate an increase in domestic demand. DWS has revised its forecast for rate cuts before the end of 2025 from 5 times to 3 times, expecting the Federal Reserve to switch to quarterly adjustments in the first half of 2025
According to the Zhitong Finance APP, Christian Scherrmann, Chief U.S. Economist at DWS, commented on the U.S. December FOMC meeting, stating that recent U.S. economic data has been mixed. Although the labor market appears to be weakening amid fluctuations, inflation remains stubborn. The latest Consumer Price Index (CPI) for November met expectations, showing that while price increases continue to slow, the momentum has clearly weakened in recent months. Nevertheless, there has been some progress in curbing inflation, and the opportunity for further rate cuts still exists, but at the same time, it is expected that the Federal Reserve will slow the pace of rate cuts after the December meeting. In addition, future fiscal and trade policies remain major unknown factors.
Federal Reserve Chairman Jerome Powell clearly stated in the last meeting not to over-speculate or anticipate, but at the very least, the extension of the Tax Cuts and Jobs Act provisions should be considered in future outlooks. Unlike other policy proposals (such as tax cuts, tariffs, or immigration), members of Congress seem to have reached a certain consensus on extending existing stimulus measures. Therefore, households and businesses may expect domestic demand to be stronger, potentially leading to increased hiring or maintaining current consumption.
The Federal Reserve will signal that it will take longer to lower interest rates to neutral (expected to be between 3% and 3.5%). Therefore, it is expected that the upcoming economic forecast summary will show that the economy will continue to grow strongly in 2025, but the number of rate cuts will decrease, and inflation will rise slightly. DWS has revised its rate cut forecast for the end of 2025 from five times to three times (including one in December). In terms of timing, it is expected that the Federal Reserve may switch to quarterly adjustments in the first half of 2025 and then pause the normalization of interest rate policy in the second half of the year