The latest 50 bp cut, bringing the rate down to 5.0 per cent, was higher than anticipated in Fitch’s September 2024 Global Economic Outlook. While recent economic data showed high core services inflation at 4.9 per cent year-on-year for August, and an uptick of 0.4 per cent month-on-month, the Fed's decision appears influenced by broader risk assessment factors, particularly regarding employment, Fitch Ratings said in its Non-Rating Action Commentary.

Fed Chair Jerome Powell highlighted concerns around rising unemployment, which increased to 4.2 per cent in August 2024, compared to 3.7 per cent in December 2023. Although the Fed’s forecasts show unemployment remaining low, Powell stressed the potential risk of continued unexpected rises.

Significant progress in curbing inflation since July 2023 has allowed the Federal Reserve to shift focus back to the maximum employment goal of its dual mandate. Fitch does not foresee a major decline in the US job market, noting ongoing payroll growth and resilient consumer spending. The recent rise in unemployment primarily reflects a recovery in labour force participation over the past 12-18 months.

Fitch expects the Fed to implement further 25 bps cuts at its November and December meetings, followed by four more 25 bps reductions throughout 2025, with the Fed likely to make adjustments at alternate FOMC meetings next year.

Fibre2Fashion News Desk (KD)