It is planned that the Federal Reserve will lower its key interest rate by a quarter percentage point next week. This is in line with its plan to gradually lower rates even as the economy changes around them.
Economists who think the Fed will cut rates said that the move would carry out the quick initial rate cut that was hinted at in September by cuts at three straight meetings. The Fed’s target rate would now be between 4.25% and 4.5%, which is a full percentage point less than it was at its highest point in early September.
Krishna Guha, vice chairman of Evercore ISI, said, “The December FOMC meeting will be the end of the first phase of the Fed’s rate cycle.”
At his press conference, Powell will start the next phase by stressing the lack of certainty. He will “make it clear that—while the Fed continues to be oriented toward moving rates carefully lower—it is now entering a different and more cautious phase of policy, with a more non-committal approach to the timing and extent of additional cuts,” he said.
People who follow the Fed said they expect the meeting to be a good argument between officials who want to cut and those who want to pause.
Former Dallas Fed President Robert Kaplan said, “The choice is not a no-brainer.”
In the end, Kaplan said, the Fed thinks that the level of rates after the cut is still putting some downward pressure on demand. This is keeping inflation in check and lowering the risk that rates will cause a recession.
The funds rate is still thought to be well above a neutral level, which means it wouldn’t be putting any downward or upward pressure on demand. “But there’s widespread recognition that estimates of neutral are very uncertain,” former Fed Gov. Larry Meyer wrote in a note to clients.
He also said that this makes the choice very close.
The Fed will meet next Tuesday and Wednesday. After their meeting, at 2 p.m., they will make a policy statement. Powell will hold a press conference at 2:30 p.m. after the meeting.
Fed-fund futures show that most traders think the Fed will cut rates. There has been no sign from the Fed that the choice is closer than markets think.
Eugenio Aleman, head economist at Raymond James, said, “They are not going to let the markets down next week.”
Stephen Stanley, top U.S. economist at Santander, said that Powell’s recent comments have sent a message to the market.
He said, “Powell seems awfully calm about inflation.”
The Fed will give its most recent predictions for the economy and monetary policy at the meeting. A lot of attention will be paid by economists to how many cuts are planned for 2025.
They planned for four quarter-point cuts in 2025, or one cut every three months, in September.
Aleman thinks the Fed will give few cuts the green light.
He said, “I think they will cut rates no more than twice next year.”
Fed-funds futures show that traders think there will only be two cuts next year.
Guha said that the Fed will likely make three cuts next year. He said this is “on the surface” dovish.
CEO of High Frequency Economics, Carl Weinberg, said that the Fed will be hit with a “wall of worry” in 2025 when they see the first moves on fiscal policy from the Trump administration.
If the president follows through on his plan to put 30% taxes on imports from Canada and Mexico, as he has said, Weinberg said, “I think the bets are off for any rate cuts next year.”
Along with imposing tariffs on all goods, Trump promised to remove illegal immigrants and cut taxes as part of his campaign. To begin with, it looks like these measures will cause prices to rise.
But investors don’t think the Fed’s new economic forecast will include what they think about Trump’s plans.
“There are definitely big changes going on.” Powell, on the other hand, has said that the Fed won’t guess what Trump will do ahead of time.
It’s what the Fed wants to do, but it can’t because of how the government runs things.
“You know Washington can’t be trusted,” he said.
“There are a lot of different pieces of information that point in separate directions.” “It’s hard to decide on policy when there’s so much doubt,” Aleman agreed.
He also said, “The Fed is aware of all these risks and will be very careful with their guidance going forward.”
Powell has already made it clear that the Fed will be careful when it cuts its key interest rates.
Nicole Swonk, head economist at KPMG, said that this could lead to more criticism of the Fed in the coming months.
“He’s already been criticized more than any other Fed chair in history, and it doesn’t bother him,” she said.
