Experts Say the Fed Will Likely Cut Rates Next Week. But What’s Next?
After nearly two years of high interest rates, the Federal Reserve is widely expected to cut interest rates for the third time this year at Wednesday’s Federal Open Market Committee meeting.
The Fed’s monetary policy has a great impact on the economy. Spending and borrowing Patterns of American families and businesses. When the Fed raises its benchmark interest rate to curb inflation, the money supply decreases and the economy slows. When the Fed lowers its benchmark interest rate, banks relieve financial stress on consumers, lowering borrowing costs for everything from auto loans to loans. credit card arrive mortgage loan.
The 0.25% interest rate cut on December 18 will have an impact on American households, but The direct impact is likely to be small. The federal funds rate has been stable in the range of 5.25% to 5.5% for more than a year, and a third rate cut will bring it to the range of 4.25% to 4.5%.
Going into 2025, borrowing rates remain high, and experts say this could be the last rate cut for a while. Financial markets are betting that the central bank will slow the pace of further rate cuts next year or delay them entirely.
The Fed is expected to cut interest rates again at next week’s meeting
Because the Fed’s role is to balance maximum employment and relative price stability, it has a significant impact on monthly economic growth Bureau of Labor Statistics Employment Report and consumer price index report The interest rate used by banks to lend each other overnight when deciding whether to raise or lower the federal funds rate.
Annual inflation has gradually improved, falling to 2.7% from 9.1% in mid-2022. But price growth remains stubborn and inflationary pressures are expected to increase after the next government takes office.
The labor market also plays a role. In September, amid signs of labor market weakness, the central bank began cutting interest rates to stave off a recession. Today, the unemployment rate is above last year’s low (4.2% vs. 3.4%), but the job market has not collapsed.
Market expectations have shifted sharply towards a 96% chance of a rate cut based on labor and inflation data released earlier this week. CME FedWatch Tool.
Many experts believe that with its third rate cut this year, a more dramatic change in the economic outlook will be needed for the Fed to change its plans.
“(Fed Chairman Jerome) Powell convinced the market that the Fed was going to cut rates, and he didn’t want to disappoint the market,” said Robert FryChief Economist at Robert Fry Economics.
Interest rate cuts expected to be smaller in 2025
With progress on inflation having stalled, the Fed is unlikely to cut rates again until there are more consistent signs of cooling. September Economic Forecast Summary Around four rate cuts are expected in 2025, with the Fed set to release new forecasts at its upcoming meeting.
“I now expect two rate cuts in 2025, versus a few months ago when I expected four rate cuts,” Fry said.
If the central bank cuts interest rates next week Preston CaldwellMorningstar’s chief U.S. economist doesn’t expect another interest rate cut immediately after President-elect Donald Trump takes office.
“If they do cut rates in December, then they probably won’t cut rates in January,” Caldwell said. “If they delay in December, then maybe they’ll keep cutting production in January.”
Although the Fed may consider cutting interest rates in March, monetary policy will still depend on future economic data. Inflation remains above the Fed’s 2% annual target, and Trump’s economic agenda The Fed may change strategy in 2025.
For example, Trump has promised to impose tariffs on goods from several countries, including China and Mexico, which would raise taxes on imported goods. Typically, businesses pass these costs on to higher consumer prices, which can reignite inflation.
But the results remain to be seen. Economist at University of Central Florida old snaith View tariffs as a negotiating tactic, part of the bargaining process between the United States and its trading partners, not necessarily as a policy to be adopted. “In the first Trump administration, we did see some tariffs being implemented,” Snaith said. “There were calls and concerns that this would trigger inflation, but that didn’t really materialize.”
Regardless of the Fed’s decision, if you plan to Borrow money to buy a house or car, or existing credit card Debt, keep an eye on your APR. Shop around for a better rate before borrowing. If you have credit card debt, consider a balance transfer card with a 0% introductory period to mitigate high APRs. Even if long-term borrowing eventually becomes cheaper, remember that lower interest rates also lead to lower yields savings account.
