On June 25, Moody’s believed that compared with the last time, the rating agency’s baseline assumptions for the Federal Reserve’s monetary policy have changed slightly.
As in the previous outlook, the Fed’s rate hike in May is expected to be the last of the current tightening cycle, with the policy rate remaining in the final range of 5% to 5.25% until the end of 2023.
However, instead of starting to cut rates in January 2024, the FOMC is now expected to delay the first rate cut until March, as inflation remains more persistent than previously expected.
While the FOMC will take further policy action depending on the continuing effects of monetary tightening on economic and financial conditions, the policy stance is expected to be sufficiently restrictive over time to bring inflation down to target.
Monetary policy will remain restrictive until the end of 2025. The federal funds rate will return to neutral in early 2026.