Fitch Ratings said on Wednesday it expects the U.S. Federal Reserve to cut interest rates twice this year – in September and December. Fed’s policy statement is due at 2 p.m. EDT (1800 GMT)
The reduction of interest rates by the Federal Reserve (Fed), according to some analysts, has the potential of impacting positively on the Nigerian economy through increased foreign investment, as investors seek higher returns in emerging markets.
This can result in increased capital inflows, foreign reserves accretion, ultimately bringing about economic growth in the Africa’s most populous nation.
However, the forecast is coming on the heels of the fact that Federal Reserve is expected to leave interest rates unchanged at the end of a two-day policy meeting on Wednesday.
According to Reuters, contracts tied to the U.S. central bank’s policy rate show investors are convinced a rate cut will happen at the Sept. 17-18 meeting, with the only disagreement over whether the Fed will begin easing policy with a quarter-percentage-point reduction, as most expect, or a more aggressive half-percentage-point cut, according to CME Group’s FedWatch tool.
The Fed has kept its policy rate in the 5.25%-5.50% range for the past year.
Throughout the Fed’s more than two-year battle to tame inflation, which included the fastest rate hikes since the 1980s, the economy has grown faster and performed better than expected – and the most recent data suggests that is continuing.
According to the international ratings agency, “A soft landing is likely with moderating inflation and low unemployment, and we are projecting annual economic growth of 2.1%, down from 2.5% in 2023.”
U.S. prices increased moderately in June as declining cost of goods tempered a rise in the cost of services, underscoring improving inflation environment that economists and analysts expect could help the Fed to begin cutting rates in September.
The report from the Commerce Department on Friday showed consumer spending slowed a bit last month. Signs of easing price pressures and a cooling labor market could boost the confidence of Fed officials that inflation is moving toward the U.S. central bank’s 2% target.
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Fitch said U.S. consumer spending continues to hold up well, but it anticipates a modestly weaker credit environment in the second half of the year.
The comments follow earnings reports from several large U.S. banks, payments and consumer companies, which showed a weakening environment for U.S. consumers, with pressure building on the lower-income bracket.
The analysts were however unanimous in their submissions that reduction could also have both positive and negative impacts on economic growth in Nigeria, depending on the specific circumstances.
For instance, they argue that lower interest rates can lead to increased borrowing and spending, which can boost economic growth, but can also lead to higher inflation and decreased savings.
They further noted that this calls for proactively actions by economic managers in ensuring that the economy is diversified to increase exports in other areas as well a conducive business environment through provision of infrastructure.
