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Monetary policy U. S.

Interest rates to come down continuously

As the ECB prepares for a second 25 basis point cut, the Fed is expected to adjust its policy rate at next week’s FOMC meeting, signaling a reversal in its tightening cycle due to cooling inflation that is nearing the Fed’s target range and growing economic concerns.

I believe the Fed is likely to implement a 25 basis point cut at this pivotal moment. However, it’s evident that the Fed has been behind the curve, largely due to its mischaracterization of inflation dynamics and an overly data-dependent approach to monetary policy. This strategy often relies on lagging and low-quality data that do not accurately reflect current economic conditions.

The Bank of Canada has repeatedly taken the lead in adjusting its monetary policy, as if the Fed is using Canada as a test case. Recently, the Bank of Canada lowered its benchmark interest rate for the third consecutive time, bringing it down to 4.25 percent from 4.5 percent, which opens the door for further cuts in the coming months.

Given this context, I anticipate that the Fed may indicate a willingness to continue cutting rates in its upcoming plan, potentially allowing for deeper cuts in subsequent meetings and a slowdown in balance sheet reduction.