What to Expect From Next Week’s Federal Reserve Meeting on Interest Rates | Global News Avenue

The Fed is widely expected to cut borrowing costs at next Wednesday’s meeting, and officials are likely to shed light on how recent economic data may influence their rate decision in the new year.

Financial markets see a 97% chance that the Fed will cut the federal funds rate by 0.25 percentage points to a range of 4.25% to 4.5%, according to CME Group’s FedWatch tool, which forecasts interest rate changes based on trading in federal funds futures. Such rate cuts are likely to be few and far between in the coming year.

Reasons for the Fed to cut interest rates has been reduced Recent reports indicate that Inflation remains stubborn above the Fed’s 2% annual interest rate target, while employment remain relatively adequate. The Fed has kept its benchmark interest rate at a two-decade high for more than a year in an effort to tame a post-pandemic outbreak of inflation, and lowered it in September and November.

The federal funds rate affects interest rates on credit cards, auto loans, and business loans. Today’s high interest rates are intended to act as sand in the economic gears, discouraging borrowing and slowing economic activity to reduce inflationary pressures.

The Fed’s mission is not only to fight inflation but also to prevent severe unemployment. Earlier this fall, a slowdown in the job market made Fed officials more worried about this part of their dual mandate, prompting A sharp 50-point interest rate cut September. employer Recruitment has slowed downalthough large-scale layoffs were avoided.

Economists expect smaller cuts in 2025

Unanswered questions at Wednesday’s meeting are how the Fed will balance these two priorities in its plans for future rate cuts, and what Fed Chairman Jerome Powell will say about the outlook at his post-meeting news conference. While next week’s rate change is all but a foregone conclusion, future rate cuts are still up in the air.

When Fed policymakers last made economic forecasts in September, they expected to cut interest rates to a range of 3.25% to 4.5% by the end of 2025, a full percentage point lower than expected by the end of this year.

Economists at Wells Fargo predict that the next round of forecasts at Wednesday’s meeting will show a cut of just three and a quarter percentage points in 2025, instead of four. Economists at Deutsche Bank predict that forecasts aside, the Fed will keep interest rates on hold and won’t cut them for at least a year. Moody’s Analytics predicts two interest rate cuts next year.

Trump’s policies are the Fed’s wildcard

Changes in presidential administrations make predicting the future even more risky than usual. The trajectory of inflation and the economy may depend on incoming President Donald Trump’s economic plans, especially high tariffs He said he would attack U.S. trading partners on his first day in office.

Economists vary on how severe these tariffs will be and how much they will be just an impact. Negotiation strategyand what impact they will have on the economy. Many forecasters think inflation will rise as businesspeople pass-through costs New import taxes imposed on consumers.

Tariffs could also complicate the Fed’s impact harming American businesses and economic growth, which would prompt the Federal Reserve to cut interest rates to boost business and protect the labor market.

“The challenge for the Fed will be to parse the supply-side impact of tariffs from demand-driven employment and inflation trends,” economists at Wells Fargo Securities wrote in a commentary.

All these unanswered questions may prompt the Fed to be more cautious about future rate cuts.

“The incoming Trump administration is likely to bring about dramatic changes in trade and domestic policy, adding to concerns that uncertainty and supports a more wait-and-see approach by the Federal Open Market Committee.”