Fitch believes that the Fed's current interest rate cut cycle will be "mild", while the Bank of Japan's more aggressive stance may continue to impact the global economy.
International credit rating agency Fitch said in a report that by historical standards, when the Federal Reserve begins to cut interest rates at its September policy meeting, its easing cycle will be "moderate".
In Fitch's global economic outlook report for September, it predicts that the Federal Reserve will cut interest rates by 25 basis points at its September and December meetings, and then reduce rates by 125 basis points in 2025 and 75 basis points in 2026.
Fitch pointed out that this means a total of 250 basis points in 10 rate cuts within 25 months, and added that in the Federal Reserve's easing cycle since the mid-1950s, the median cumulative rate cut from peak to bottom was 470 basis points, with a median duration of 8 months.
The report states: "We expect the Federal Reserve to pursue an accommodative policy at a relatively moderate pace, partly because there is still work to be done on inflation." This is because the CPI inflation rate is still higher than the Federal Reserve's target level of 2%.
Fitch also noted that the recent decline in core inflation (excluding food and energy prices) mainly reflects the decline in car prices, and the decline in car prices may not be sustained.
According to a report from the U.S. Department of Labor on Wednesday, the U.S. CPI rose 2.5% year-on-year in August, lower than the expected 2.6%, marking the lowest increase in three and a half years; on a monthly basis, it rose 0.2%. The core CPI, which excludes volatile food and energy prices, rose 0.3% that month, slightly higher than the expected 0.2%; the year-on-year growth rate remained at 3.2%, consistent with expectations.
Fitch also pointed out," The inflation challenges that the Federal Reserve has faced in the past three and a half years may also keep FOMC members cautious. The time needed to suppress inflation is much longer than expected, and central banks around the world have shown differences in their understanding of inflationary drivers."
In Asia, Fitch Ratings said, "The Bank of Japan is moving against the global trend of loose policy, with a rate hike exceeding our expectations in July. This reflects its growing conviction that reflation is now firmly entrenched."
Fitch Ratings stated that due to the core inflation rate being above the Bank of Japan's target for 23 consecutive months, and the company's preparation to provide "sustained" and "substantial" wages, this situation is very different from the "lost decade" of the 1990s, when wages failed to grow amid continuous deflation.
This aligns with the Bank of Japan's goal of a "wage-price virtuous cycle," which enhances the Bank of Japan's confidence in continuing to raise interest rates to a neutral level.
Fitch Ratings expects the Bank of Japan's benchmark policy rate to reach 0.5% by the end of 2024, 0.75% by 2025, and added, "We expect the policy rate to reach 1% by the end of 2026, higher than market expectations. The Bank of Japan's firmer stance may continue to have a global impact."
Editor/Lambor