Payden and Rygel: The Fed May Lower Rates More Than Markets Anticipate

In a note regarding the economic outlook, Payden and Rygel economists stated that the U.S. Federal Reserve could lower interest rates more than the markets currently anticipate in 2025, as inflation decreases and unemployment rises. They mentioned, "While the Fed's preferred core inflation indicator may fall below 2% in 2025, the U.S. unemployment rate could end 2025 at 4.4% or higher." The economists emphasized that the Fed could "easily" reduce rates more than the currently priced-in 35 basis points reduction for 2025 in the U.S. money markets. They added, "The optimal Fed funds rate would be 3.3%, which would imply at least four cuts of 25 basis points each in 2025."