The team of the United Kingdom's Financial Times recently updated their forecast for the future of the US Federal Reserve interest rates. The following is the full content.

Following a 50 basis point rate cut in September, we still believe that the Federal Reserve will cut rates twice more in 2024 by 25 basis points each time.

Since our most recent forecast, the job report and inflation data for September have been significantly stronger than expected. In addition, data showing weak job growth in the past few months has been revised upward by a large margin, indicating that the previous view of the labor market slipping into a recession was a mirage. Recently, rapidly changing retail sales data also indicate that American consumers still have resilience, suggesting that consumer spending may continue to rise in the third quarter.

These new information has caused some market participants to worry that the US economy may experience a scenario of 'non-landing,' where the Federal Reserve fails to bring inflation down to the target level under the current policy setting and is eventually forced to hike rates again. The market currently expects the remaining rate cuts in 2024 to be less than 2 times, lower than over 4 times a month ago.

We continue to expect the Federal Reserve to cut rates twice more this year. The September job data continues the volatility of this series of data, and is more likely to be just a strong month in the broader trend of gradual labor market easing. We are also pleased to see that housing inflation, a major structural reason for overall strong inflation growth, declined in September.

Nevertheless, we believe that the interest rate risk is skewed to the upside. Besides the neutral interest rate being higher than the Fed's expectations, indicating that the current policy setting may be looser than what rate setters believe, our long-term assessment of the Fed interest rate path is also based on fiscal conditions similar to the current ones. However, with the increasing possibility of a landslide victory for the Republicans in the November elections, the risk of the Fed tightening policy in response to next year's unrestrained fiscal expansion is higher.

Here is our expectation for the future rate cut path of the Federal Reserve.

November this year

We expect the Federal Reserve to cut interest rates by 25 basis points in November, bringing the benchmark rate to 4.5-4.75%.

Although the September employment and inflation data suggest a smaller chance of a larger rate cut, the scenario of 'no landing' is not our base forecast.

Currently, the data still broadly aligns with the Federal Reserve's basic expectations - gradually countering inflation, which will provide the basis for further rate cuts. Since the inflation data was released, several hawkish policymakers have publicly stated that the accommodative policy should continue, but at a gradual pace.

In general, we still believe that the Federal Reserve will cut rates again at this meeting. However, if the October employment report is once again very strong, the Federal Reserve may choose to hold off.

By the end of this year

We believe that the Federal Reserve will cut interest rates by a total of 100 basis points before the end of this year, bringing the fund rate down to 4.25-4.5%. This is consistent with the Federal Reserve's economic forecast summary for September. However, this forecast is based on a fiscal outlook similar to today's.

If inflation accelerates again in the coming months, or if the labor market maintains the strong momentum consistent with the September data, the Federal Reserve may pause rate cuts, or only cut rates by 25 basis points before the end of the year. This is the main risk in our forecast.

If the labor market weakens rapidly in the autumn, economic activity slows down, and the risk of an economic recession increases, the Federal Reserve will significantly loosen its policy. However, given the strong performance of the September data, we believe that the Federal Reserve will not be willing to make another significant rate cut before the end of the year.

First half of 2025

We believe that if Harris wins the US presidential election, the Federal Reserve will cut rates three more times in the first half of 2025, each time by 25 basis points, bringing the policy rate down to 3.5-3.75%.

The core belief of the Federal Reserve is that the economy is heading towards gradually increasing inflation and a slowing labor market, so it no longer needs a restrictive monetary policy.

Due to the current policy settings being far from the policy makers' assessment of the neutral interest rate, we believe that the Federal Reserve will cut rates in the first half of 2025. If it cuts rates three times in the first half of 2025, then it will be just one rate cut away from a reasonable assessment of the neutral rate.

However, we believe there are two main risks, both pointing to a slowdown in the pace of easing.

First, the Republican Party is poised for a big win in the upcoming elections, enabling the party to advance full fiscal expansion matching tariffs. These policy decisions will lead to inflation and may prompt the Fed to cut interest rates at a slower pace.

The second risk is the scenario of 'no landing' becoming a reality, as monetary policy is not as tight as currently estimated by the Fed. If inflation does not further decline, and the labor market remains robust, the Fed's actions will be slower than our current expectations.

The Fed may also cut interest rates at every meeting in the first half of 2025, keeping the benchmark rate at 3.25-3.5% by the end of June. This scenario could occur if the labor market sharply weakens at a faster rate, but current data do not show this possibility.

2025

We expect the Fed to cut interest rates a total of four times in 2025, by 25 basis points each time, bringing the policy rate to 3.25-3.5%. This is in line with the latest assessment by policymakers in the September dot plot.

This rate of rate cuts is consistent with gradual policy normalization, aiming for inflation rates to fall to the 2% target, economic activity to slow down, and wage growth to slow down as unemployment rates rise.

At the same time, this situation also depends on whether the fiscal policy continues on a path similar to today, that is, the Democratic Party controls the White House and the Republican Party controls Congress, limiting the ability of the Democratic Party to fully implement its fiscal agenda.

As for the scenario as of June 2025, as mentioned earlier, the main risks we consider are the complete victory of the Republican Party or the 'non-landing' of the US economy. Both will lead to benchmark interest rates higher by the end of 2025 than expected.

If the labor market slows significantly later in 2024 or early in 2025, the Fed's interest rate cuts may also exceed our current expectations.

Long-term neutral interest rate

Our long-term interest rate forecast remains unchanged, with the neutral interest rate expected to be around 3.25%.

Editor/rice