Comerica Bank’s Chief Economist, Bill Adams, predicts the Federal Reserve will likely “go on hold” with interest rate cuts after June 2025. This projection comes amid market expectations of further rate cuts following the Fed’s September meeting signal of lowering rates to a less restrictive level by year-end.
Adams, speaking alongside Matt McLennan, co-head of First Eagle’s global value team, on [Name of Show/Platform], explained that while current inflation sits between 2.5% and 3%, slightly above the Fed’s 2% target, the central bank feels less pressure to maintain rates around 5%. He anticipates further cuts in March and June 2024, bringing rates below 4% by the end of next year.
This cautious approach to future rate cuts is attributed to several factors. Adams points to the anticipation of another round of fiscal stimulus following the Republican sweep, coupled with potential upward pressure on goods prices due to higher tariffs in 2024. These factors, he argues, will likely necessitate a more conservative monetary policy.
While acknowledging the market’s current optimism, McLennan expressed a degree of caution. He noted that positive factors like goods deflation in China, lower oil prices, and moderated wage inflation are already priced into the market. However, he warned of potential upward pressure on wages due to a recent uptick in the quits rate and job openings, which could reignite inflationary pressures. McLennan emphasized First Eagle’s view that with 7% fiscal deficits, inflation remains a concern.
Despite the projected rate cuts, Adams believes monetary policy will remain “modestly restrictive” in 2025. He estimates the neutral level of interest rates in the US to be between 2.5% and 3%, implying that even with the anticipated cuts, rates will remain above this neutral level.
