Expectations of a Modest Fed Rate Cut by Year-End: Balancing a Soft U.S. Economic Landing with the Rebound in Inflation

Looking ahead to the remainder of this year, the U.S. economy appears to be on track for a soft landing, and as the year-end approaches, we might witness a rebound in inflation. Based on these circumstances, the Federal Reserve may only implement a small interest rate cut, such as 25 basis points.

Considering the strong consumer spending, which accounts for the lion's share of the U.S. economy, and the current deceleration of inflation trends, we anticipate that the Federal Reserve may only cut rates once this year, and the reduction will likely be modest.

As for the path of interest rate cuts in 2025, it will hinge on several key factors, including who will be the next president and the performance of the real estate market and manufacturing sector. If Trump is re-elected, he may enforce policies such as increasing tariffs and restricting immigration, which could exert greater pressure on inflation. Moreover, if the Republican Party fails to control Congress, there may be a fierce debate on the government debt ceiling issue at the beginning of 2025, potentially leading to a government shutdown and negatively impacting the economy, thereby increasing the likelihood of rate cuts.