The Fed could cut rates 5 times in 2025 with the US economy bound to slow, chief economist says

Jerome Powell stressed that the Fed would maintain support for the economy.

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• The Fed could cut rates five times in 2025, according to S&P Global Ratings' global chief economist.
• A slowing US economy will give the Fed the green light to cut, the firm predicted.
• That implies the Fed will lower rates by 2 full percentage points as inflation continues to cool.

The Fed could cut rates as many as five times next year, as the US economy can't keep its hot pace of growth forever, according to Paul Gruenwald, S&P Global Ratings' global chief economist.  

Speaking to Yahoo Finance on Wednesday, Gruenwald predicted that central bankers would issue three rate cuts in 2024, followed by as many as five rate cuts in 2025. That implies the Fed will take interest rates down by two full percentage points over the next 21 months, a far steeper pace of monetary easing than other economists have forecast.

That's because the economy is bound to slow, Gruenwald said, despite the US seeing a boom in productivity and investment this year. In his view, a slower economy will make it more apparent inflation is on its way back to the Fed's 2% price target, giving central bankers the green light to start cutting rates in earnest.

Though S&P Global is forecasting GDP to expand 2.5% by the end of 2024, the firm sees growth dialing back in the second half of the year. Once that slowdown hits, the Fed will be poised to start trimming interest rates "slower-for-longer," Gruenwald said.

"The US has to slow down," he added. "At some point, and this is actually our forecast, second half of this year we've got to slow down a bit." 

There are some upside risks to that forecast. If the labor market "tanks" and unemployment soars higher, the Fed could end up cutting rates even more aggressively than anticipated, Gruenwald said, though he's still expecting the Fed to lower rates gradually. 

That's contrary to the view of other Wall Street forecasters, who are warning rates may stay higher for longer as prices risk remaining stubbornly high. Consumer prices unexpectedly accelerated in February, growing 3.2% year-per-year. Inflation also risks treading even higher this year, some economists have warned, as the AI-fueled stock boom could be loosening financial conditions without the Fed's help. 

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