Schroders global investment research report states that due to the uncertainty of the "neutral" interest rate level, the Federal Reserve's aggressive rate cut cycle may reignite inflation risks. In Schroders global's view, the risk of underestimating the neutral interest rate is greater than overestimating it. This requires a more cautious approach to monetary easing than what is currently expected. Therefore, the current expectation is that the committee will reduce interest rates by a quarter basis point in March and June 2025 respectively, then pause the rate cuts to assess the effectiveness of the cumulative 1.5 basis point rate cuts already implemented. If inflation remains under control, this should pave the way for further moderate monetary easing in 2026. When the Federal Reserve initiates a rate cut cycle with a half basis point reduction, it usually attracts attention from the investment market. The US did this in January 2001, September 2007 (three to four months before the US economy entered a recession), and at the beginning of the global pandemic outbreak in March 2020. Due to these precedents, the bank had assumed that the Federal Reserve would follow the approach taken in mid-1995, 1998, and 2019. In those three instances, a slowing economic growth (not a recession) prompted the Federal Reserve to start the rate cuts with a conventional quarter basis point reduction. Schroders global states that only the Federal Open Market Committee (FOMC) chose the more aggressive half basis point reduction, in line with the expectations of 91 out of 100 economists surveyed by the bank and other institutions. Federal Reserve Chairman Powell attempted to frame this as a "recalibration" during a press conference, mentioning it nine times, while emphasizing the long and variable lags of monetary policy. This implied that the rates were too tight for the current stage of the economic cycle, and the Federal Reserve aimed to quickly return to the neutral rate. Although Powell's logic is understandable, considering such an aggressively loose monetary policy pace may be unnecessary. Neutrality is an imprecise concept, not a measurable number. It represents a theoretical level of interest rates that would neither be too tight nor too loose in order to bring economic growth and inflation back to a stable and predictable path. However, if there is an aggressive rate cut cycle and the US economy proves more resilient than policymakers expected, the US monetary policy may end up being too loose or below the neutral level, reigniting inflation risks. Federal Reserve Board member Bowman seems to share similar concerns, as she supported a quarter-point rate cut at the September policy meeting. She believes that the US labor market is still close to full employment, despite recent signs of weakness due to data calculation and immigration issues. Although inflation has eased significantly, she believes it is too early to declare victory, and it is better to proceed at a moderate pace to avoid unnecessarily stimulating demand. However, Bowman seems to be in the minority. Federal Open Market Committee members' "dot plot" forecasts for the end of 2024 indicate a further half-point rate cut on top of the current 5.00-4.75% federal funds rate range. Although this may be somewhat excessive, it is best not to go against the Federal Reserve. Therefore, it is expected that the Federal Reserve will reduce rates by a quarter-point in November and December, instead of just December as previously anticipated. Combined with the significant rate cut in September, this extra half-point cut leads to a revision of growth forecasts for 2025 to 2.1% higher than the consensus. Schroders global views the risks of interest rate forecasts as downward. It is still unclear whether the investment market influenced the Federal Reserve's half-point rate cut in September, but regardless, the committee should not make this a habit. The latest forecasts include a scenario of "aggressive rate cuts": in this case, concerns about the outlook for economic growth persuade the committee to implement the market's expected aggressive rate cuts. The bank believes this will ultimately accelerate the pace of inflation again, prompting the committee to start raising rates again.