Westpac says the Federal Reserve is edging toward a neutral stance as risks around inflation and the labour market become more balanced, though uncertainty remains elevated.
- At its September meeting, the Fed cut rates by 25 basis points to a midpoint of 4.125% and signalled that risk management was its priority.
- Updated forecasts point to firmer growth and a shallower rise in unemployment than previously expected, with GDP seen running near trend through 2028 and joblessness peaking at just 4.5% in late 2025.
- Inflation is projected to ease gradually, falling back toward the 2% target by 2027.
Westpac notes the Fed’s so-called “dot plot” reveals a wide dispersion of views, with some policymakers favouring more cuts this year while others see little need for further easing. By 2027, however, forecasts largely converge back to trend.
Even so, Westpac remains more cautious than the Fed’s median view. The bank believes U.S. growth and employment are likely to come in weaker than policymakers expect, while inflation may prove stickier. That combination, it argues, could force the Fed to keep policy modestly restrictive for longer, rather than shifting quickly toward an outright expansionary stance.
This article was written by Eamonn Sheridan at investinglive.com.