The US central bank faces the challenge of balancing moderate rate cuts with a cautious stance on its monetary policy. In the midst of a stronger than expected economic outlook and political uncertainty with the arrival of Trump.
Most likely, the Federal Reserve (Fed) reduce financing costs this Wednesday in what some market analysts call a “restrictive cut,” which is accompanied by updates to interest rate projections and economic forecasts from monetary policy makers, which will cover the first months of the next Trump administration.
The anticipated movement of a quarter of a percentage point would reduce the US central bank’s monetary policy reference rate to the range of 4.25%-4.50%a full percentage point below September levelwhen the Fed began to relax the restrictive monetary policy implemented to counteract the sharp increase in inflation that began in 2021.
However, how much further and how quickly rates will fall next year is anyone’s guess. Inflation remains above the Fed’s 2% target, the economy is advancing faster than expected, and President-elect Donald Trump’s tariffs, taxes and immigration policies could alter the economic outlook unpredictably once he takes office in January.
What the Fed analyzes
In their most recent quarterly projections in September, Fed officials anticipated cutting the benchmark rate by another full percentage point, putting it around 3.4% by the end of 2025. However, among data showing that inflation remains above the 2% target and Trump’s victory in the presidential elections on November 5, Investors now believe the Fed could cut the benchmark rate by just half a percentage point next year.
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Federal Reserve
They will closely scrutinize Fed Chair Jerome Powell’s projections and comments at the post-meeting press conference to determine whether policymakers are also taking a more cautious approach to future cuts.
The Fed will release its monetary policy statement and updated economic projections at 2 pm EST (i.e. 16:00 (4:00 pm) of Argentina), and Powell will begin speaking half an hour later.
Finally, it is worth remembering that Trump will take office on January 20, and The Fed will meet just over a week later, on January 28 and 29. A total of 58 of 99 economists recently surveyed by Reuters said they expected the US central bank will not cut rates at that meeting, as monetary policymakers will evaluate how the economy is evolving.
Source: Ambito
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