Federal Reserve will opt for slow policy easing as there's 'still work to do' on inflation, Fitch says

cnbc.com:

The U.S. Federal Reserve's easing cycle will be «mild» by historical standards when it starts cutting rates at its September policy meeting, ratings agency Fitch said in a note.

In its global economic outlook report for September, Fitch forecast 25-basis-point cut each at the central bank's September and December meeting, before it slashes rates by 125 basis points in 2025 and 75 basis points in 2026.

This will add up to a total 250 basis points of cuts in 10 moves across 25 months, Fitch noted, adding that the median cut from peak rates to bottom in previous Fed easing cycles going up to the mid-1950s was 470 basis points, with a median duration of 8 months.

«One reason we expect Fed easing to proceed at a relatively gentle pace is that there is still work to do on inflation,» the report said.

This is because CPI inflation is still above the Fed's stated inflation target of 2%.

Fitch also pointed out that the recent decline in the core inflation — which excludes prices of food and energy — rate mostly reflected the drop in automobile prices, which may not last.

U.S. inflation in August declined to its lowest level since February 2021, according to a Labor Department report Wednesday.

The consumer price index rose 2.5% year on year in August, coming in lower than the 2.6% expected by Dow Jones and hitting its lowest rate of increase in 3½ years. On a month-on-month basis, inflation rose 0.2% from July.

Core CPI, which excludes volatile food and energy prices, rose 0.3% for the month, slightly higher than the 0.2% estimate. The 12-month core inflation rate held at 3.2%, in line with the forecast.

Fitch also noted that «The inflation challenges faced by the Fed over the past three and a half years are also likely to