The December Federal Reserve Meeting Started Tuesday—What You Need to Know | Global News Avenue

The Federal Reserve’s policy committee begins a two-day meeting on Tuesday, the outcome of which could have far-reaching implications for the new year.

this Federal Reserve Open Market Committee (FOMC) It is the final meeting of the year and policy decisions will be announced on Wednesday afternoon. The committee is Cuts are widely expected its influence federal funds rate a quarter of a percentage point, and could discuss other more technical policy changes.

official lower federal funds rate At the September meeting, interest rates were raised for the first time in four years from a two-decade high, and they were cut again last month. This week’s expected cuts will bring the total cuts this year to one percentage point.

While the Fed’s immediate actions were fairly predictable, the changing economic landscape poses some questions for central bankers as they enter the new year. Here’s what you need to know.

How has the economic situation changed since November?

There have been some changes in the economic situation since the committee met in November. unemployment not risen yet As central bankers expected, inflation missed expectations Cool as much Just as the committee hoped.

The Federal Open Market Committee uses interest rates as a tool to stimulate or suppress the economy. When the economy is running too hot and fueling inflation, the committee will raise interest rates to curb borrowing and spending. When the economy slows, it usually brings a wave of layoffs, which the committee tries to avoid by lowering interest rates and encouraging spending.

Concerns about rising unemployment drove the start of this rate-cutting cycle. But as it continues Strong consumer spending Coupled with solid employment data, the Fed may have less reason to lower its influential interest rates.

So why is it still possible that the Fed will cut its key interest rate?

As the economy shifts this month, some Want to know why the Fed is cutting interest rates? Key interest rates this week. A CNBC survey released on Tuesday showed that while 93% of respondents believed the Fed would cut interest rates by 25 basis points at this meeting, only 63% believed it was the right move.

Some economists say central bankers may continue to take action altitude telegraph The action was taken because traders now expected it, even if they disagreed.

“The Fed is likely to follow suit so as not to impact expectations, but the likelihood of a January pause has increased,” wrote Bob Schwartz, senior economist at Oxford Economics.

What do this week’s meetings mean for New Year’s policy?

Fed watchers will get a more detailed look at what recent economic data means for the central bank on Wednesday when it releases a summary of its economic forecasts and its policy decisions.

The forecasts are a snapshot of individual committee members’ best guesses about future job losses, inflation and interest rate cuts. Economists expect an average of three interest rate cuts in 2025, fewer than they forecast. Finally expressed their expectations September.

Observers will also listen for clues about the path forward when Chairman Jerome Powell addresses reporters after the decision is announced.

“Chairman Powell’s press conference is likely to send a consistent signal that the Fed will slow the pace of rate cuts in 2025,” Deutsche Bank economists wrote last week.