The US Federal Reserve is widely expected to deliver a 25-basis-point rate cut at the conclusion of its two-day meeting on December 18, bringing the federal funds rate down to a target range of 4.25%-4.5% from the current 4.5%-4.75%.
Key Highlights:
- Rate Cut Expectations:
- The FedWatch tool from CME Group indicates a 99% probability of a 25-bps rate cut.
- If confirmed, this would mark the third consecutive rate cut as the Fed navigates inflation control and economic stability.
- Supporting Data:
- Robust employment data and last week’s inflation readings have reinforced expectations for further easing.
- Fed Chair’s Statement:
- Jerome Powell will release the policy statement at 2:00 p.m. ET (12:30 a.m. IST, December 19), followed by a press conference at 2:30 p.m. ET (1:00 a.m. IST).
- Markets will closely monitor Powell’s tone for clues on the 2025 monetary policy trajectory.
- Future Rate Outlook:
- While the December cut is almost certain, the probability of another rate reduction in January remains low, with markets pricing in just 15% chance of further easing next month.
- Economists at Goldman Sachs anticipate the Fed may slow the pace of future rate cuts and skip reducing rates in January, signaling a cautious approach.
- Political Context:
- This decision is significant as it may be the final adjustment under Powell’s leadership before the Trump administration takes office in January 2025.
Economic Projections:
Analysts expect the FOMC to release updated projections for growth, inflation, and interest rates, offering further insights into the US central bank’s path for 2025 monetary policy.
With markets already factoring in today’s expected decision, the Fed’s guidance on the pace and timing of future rate cuts will be critical.
