Federal Reserve is expected to make 3rd consecutive rate cut this week. Here’s what to know.
The Federal Reserve will make its final 2024 interest rate decision on Wednesday, capping off a year in which it will pass the introduction of first interest rate cut Within four years.
A survey of economists by financial data company FactSet showed that on December 18, the Federal Reserve may cut interest rates for the third consecutive time since 2024. However, many experts are also prepared to slow the pace of rate cuts in 2025, given the still-high inflation rate in the United States and some of the economic policies proposed by President-elect Donald Trump that, if implemented, could stoke inflation.
The Fed has been battling inflation since March 2022, when it began raising interest rates to cool the economy, eventually pushing the benchmark rate to its highest level in 23 years. Although inflation has slowed sharply since then, the consumer price index in November up 2.7%exceeding the Fed’s goal of reducing inflation to an annual rate of 2%.
That suggests the fight against inflation isn’t over yet, even though the November inflation report was in line with economists’ expectations. Meanwhile, one economist noted that the unemployment rate has risen slightly this year, raising concerns about labor market weakness from the Federal Reserve and opening the door to a near-term interest rate cut.
LendingTree senior economist Jacob Channel said in an email that “the Fed will likely cut interest rates by another quarter point at the December meeting,” adding, “However, this may be the last rate cut for a while.” .
“With incoming Trump administration policies that could lead to a resurgence in inflation or otherwise unbalance the economy, the Fed may choose to take a wait-and-see approach and keep interest rates steady at its January meeting,” the channel noted.
When is the December Fed meeting?
The Federal Open Market Committee (FOMC) meeting will be held on December 17th and 18th, which is the last meeting of the year.
When will the Fed announce interest rates?
The central bank is scheduled to announce an interest rate decision at 2 pm Eastern Time on December 18.
This will be followed by a news conference with Federal Reserve Chairman Jerome Powell at 2:30 p.m. ET, where Powell will discuss the Fed’s economic outlook and answer questions from reporters.
Will the Fed cut interest rates in December?
About nine-in-ten economists surveyed by financial data firm FactSet predicted the Fed would cut its benchmark interest rate by 0.25 percentage point on Wednesday.
If that happens, the federal funds rate, the rate banks charge each other for short-term loans, would fall to a range of 4.25% to 4.5%, down from the current target range of 4.5% to 4.75%.
It would mark the Fed’s third consecutive rate cut this year, starting with a massive 0.5 percentage point cut in September and followed by further cuts. Decrease by 0.25 percentage points at the November meeting.
How will another rate cut affect my money?
Any reduction in the federal funds rate could lower borrowing costs for millions of Americans. But a 0.25 percentage point cut isn’t likely to have that big of an impact, and LendingTree chief credit analyst Matt Schulz noted that it “could potentially lower your monthly debt payment by a dollar or two.”
“Another rate cut is good news at the end of a tumultuous year, but it ultimately means little for those who are deeply in debt,” Schultz said.
Still, credit card New Year’s rates have dropped to 24.43% from 24.92% in September, according to LendingTree. Lending rates for other products, such as home equity lines of credit, also fell.
Despite the rate cuts, mortgage rates haven’t changed much and continue to hover near 20-year highs, disappointing many potential homebuyers. While the Federal Reserve’s benchmark interest rate affects home borrowing costs, mortgage lending is also affected by broader economic trends and changes in the U.S. 10-year Treasury note yield.
“Looking ahead, mortgage rates are likely to continue to fluctuate from week to week with no certainty as to where they will ultimately go,” LendingTree Channel said.
What’s going on with inflation and the economy?
Inflation, the rate at which the prices of goods and services change over time, has cooled since a 40-year peak of 9.1% in June 2022.
The Federal Reserve will raise its benchmark interest rate starting in 2022 to curb economic demand and curb inflation. But while inflation has slowed since peaking in 2022, prices for many products and services remain well above pre-pandemic levels.
Prices are likely to remain high unless there is a period of deflation, which usually only occurs during a severe economic downturn, such as a recession.
That has left many Americans feeling financially strapped, and millions took their frustrations to the ballot box last month to vote for Trump economic vision End the “inflation nightmare.”
How will Trump’s economic plans affect the Fed?
Wall Street economists say that while Trump has vowed to address rising prices, some of his policies could lead to inflation. For example, last month Trump Announce plan Imposing 25% tariffs on all imports from Mexico and Canada on the day he takes office, January 20.
The president-elect also said he intends to impose an additional 10% fee on all goods imported from China.
But tariffs are essentially consumption taxes, usually paid by consumers. In other words, U.S. shoppers could end up spending more on everything from avocados imported from Mexico to televisions made in China.
Because inflation is likely to rise in 2025 if Trump imposes widespread tariffs, many economists expect the Fed to slow or pause interest rate decisions next year and adopt a wait-and-see approach.
Goldman Sachs economists noted in a research report on December 15 that “Federal Reserve officials may prefer to remain cautious given the uncertainty surrounding the new administration’s policies, especially potential tariff increases.”
Will the Fed cut interest rates in 2025?
Economists predict the Fed will continue cutting interest rates next year, although some are scaling back the number of cuts they expect.
The Federal Reserve will release its Summary of Economic Projections (SEP) on December 18, which will provide some insight into the FOMC’s expectations for 2025.
The Fed’s outlook is likely to predict three rate cuts of 0.25 percentage points each in 2025, Ernst & Young chief economist Gregory Daco said in an email, down from the four expected when the central bank last released its SEP in September. Cut interest rates.
Darko added that at Wednesday’s press conference, Powell could “reiterate a familiar metaphor of moving slowly in a dark room full of objects to justify ‘skipping’ a potential rate cut at the January meeting sex.”
