Macquarie has revised its expectations for the Federal Reserve’s interest rate cuts, now anticipating a single 25-basis-point reduction in December 2025. Previously, Macquarie had predicted no rate cuts from the Fed this year.
Key Points
Revised Expectations: Macquarie economists David Doyle and Chinara Azizova now expect the Fed to cut rates once in 2025, by 25 basis points, in December. This marks a shift from their earlier forecast of no rate cuts this year.
Core PCE Inflation: The revised outlook is influenced by the Fed’s tolerance for higher core PCE inflation. Despite raising their forecast for core PCE inflation, FOMC members are still open to a 50-basis-point rate cut, which has prompted Macquarie to adjust their baseline view on the timing of future rate cuts.
Future Rate Cut: Macquarie still expects a total of 50 basis points in rate cuts, but the timeline for these cuts has been slightly accelerated.
Analysis
The change in Macquarie’s forecast reflects a nuanced view of the Fed’s approach to inflation and economic conditions. While core PCE inflation is expected to remain elevated, the Fed’s willingness to tolerate higher inflation levels could facilitate a rate cut this year. This adjustment underscores the dynamic nature of economic forecasting and the influence of evolving economic indicators on policy expectations.
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