Fitch expects gradual easing of monetary policy as inflation persists

The US Federal Reserve is expected to proceed cautiously with monetary policy easing, despite recent signs of cooling inflation. Ratings agency Fitch forecasts a “mild” easing cycle, with interest rate cuts likely to be implemented gradually starting at the September meeting.

According to Fitch, the Fed’s cautious stance stems from persistent inflation challenges. While recent data suggest that price pressures may be easing, inflation remains above the Fed’s target, raising concerns about a premature departure from its current tight stance.

Fitch emphasizes that the Fed will closely monitor upcoming economic data, particularly inflation and labor market indicators, before committing to a sustained easing cycle. The agency expects the Fed to maintain a data-dependent approach, adjusting its monetary policy course based on the evolving economic landscape.

This cautious stance reflects the delicate balancing act faced by the Federal Reserve. While easing monetary policy can stimulate economic growth, doing so too quickly risks reigniting inflation, potentially necessitating further rate hikes in the future. Therefore, the Fed is likely to prioritize ensuring that inflation is firmly under control before significantly loosening its grip on monetary policy.