The Federal Reserve is poised to make headlines this month as it prepares to announce its third interest rate cut of the year during its final meeting of 2024. Expectations are high, with the central bank likely reducing the benchmark rate to between 4.25% and 4.5% from its existing range of 4.5% to 4.75%.
The stakes are particularly significant as federal officials convene at the end of December. A multitude of factors are influencing this meeting, including persistent inflation and various socioeconomic dynamics as the United States gears up for the presidency of Donald Trump, who will assume office on January 20, 2025.
Increasingly, economists and analysts are betting on the Fed's decision. Financial markets have calculated a staggering 99% chance of the rate cut, according to the CME Group's FedWatch tool, which tracks fed funds futures trading data. The cut is seen as both necessary and prudent, as inflation rates have remained stubbornly above the Fed's target of 2% annually, alongside a strong labor market.
Chairman Jerome Powell's comments during the anticipated press conference will be under close scrutiny as they may provide insight not only on this decision but also on the Fed’s future policy direction. According to Powell, the Fed remains cautious, as the economy exhibits resilience yet is tempered by uncertainties, including the potential economic impact of Trump's tariffs on imports, which could intensify inflationary pressures.
"The one percentage point in cuts this year shows the U.S. Fed has done a lot to support the economy," Powell stated. Still, he added, "policymakers now want to see progress on inflation before reducing rates any more."
According to reports, the Federal Open Market Committee (FOMC) voted 11-1 to lower interest rates during their meeting, reflecting broad agreement on the need for easing measures. Analysts suggest the forecast could show fewer than four anticipated rate cuts for 2025. This indicates Fed officials are preparing to move at a more cautious pace as they reassess economic conditions.
Tim Duy, chief U.S. economist for SGH Macro Advisors, speculated, "as you get closer to the upper bound of those estimates, it makes sense for the Fed to move more slowly, as it assesses where it is in the policy cycles."
Importantly, the Fed is also expected to update its quarterly Summary of Economic Projections (SEP) during this meeting. This document will be closely read for indications of how policymakers predict interest rates will evolve over the next several years.
The confusion surrounding future economic conditions is driven, among other factors, by looming changes expected from the incoming Trump administration, which has proposed significant tariffs. Economic forecasts suggest this could lead to increased inflation, as businesses adjust pricing to accommodate new import taxes. Wells Fargo noted, "the potential for dramatic shifts... supports more of a wait-and-see approach from the FOMC."
Observing how the Fed balances its dual mandate to control inflation and maintain employment will be pivotal, as past aggressive rate cuts could be tempered by incoming economic policies.
Market reactions to the impending rate cuts are already evident. Following the Fed announcement, gold prices fell as forecasts indicated less monetary easing for 2025. Spot gold fell by 1.6% to $2,605 per ounce, with similar trends for silver and platinum. Meanwhile, stock indices such as the Dow Jones saw declines — shedding over 1% as uncertainty lurked around forthcoming economic data and Fed statements post-meeting.
Forecasting the Fed's path is akin to walking through fog; the unexpected can always emerge. While the immediate rate decision seems largely known, the outlines of future policy remain ripe for debate. "Jerome Powell flags inflation risks for 2025 as FOMC sees fewer interest rate cuts," reads the prevailing narrative as economists prepare for potential volatility.
The upcoming press conference on Fed decisions can be accessed live via the Federal Reserve's official website and YouTube channel, where Powell will have the opportunity to clarify the central bank's stance as the public and market players eagerly await responses to these pressing questions. By observing economic indicators and the Fed's responses to upcoming data and policies, individuals and businesses alike can prepare for the new economic landscapes approaching with the new year.
What role these monetary policy adjustments will play for average consumers and businesses remains to be seen, but as history has shown, the Fed's actions ripple through the economy long after the press conferences end.
