S&P Global Ratings lowered its growth forecasts for the U.S. through 2020 amid trade tensions, projecting another Federal Reserve rate cut in the year as economic momentum slows.
The rating agency trimmed U.S. GDP growth forecast to 2.3% from 2.5% previously estimated for 2019 and to 1.7% from 1.8% for 2020, citing the ongoing trade dispute between the U.S. and China as the largest downside risk to the outlook.
While job and wage growth data, retail sales and positive signs in the housing market bode well for the economy, S&P Global Ratings said there are indicators that suggest the risk of a U.S. recession in the next 12 months is at 30%-35%, more than double than a year ago.
This comes as the effects of the previous year's fiscal stimulus fade and the global economic slowdown continues. From 2021 to 2023, the agency projects an average of 1.8% annual GDP expansion for the U.S.
The clash between the two largest economies of the world has not had a material direct macroeconomic impact on either country, but it poses long-term risks to global supply chains, U.S. business sentiment, and investor appetite, S&P Global Ratings said, projecting U.S. business investment growth to decline to 2.9% in 2019 and 2.8% in 2020 from 6.4% in 2018.
Against this backdrop, the agency expects the Fed to lower the federal funds rate once more this year, to a range of 1.5%-1.75% from the current 1.75%-2.00%. However, the central bank is then expected to hold onto rates in 2020 amid rising core inflation.
