FOMC’s December Gathering: Rate Cuts in Focus
The Federal Reserve Open Markets Committee (FOMC) convened on Tuesday for the Fed’s final meeting of 2024. As central bankers deliberate, their policy decisions, announced on Wednesday afternoon, are expected to reverberate into the coming year. Analysts widely anticipate a quarter-point reduction in the federal funds rate, potentially marking this year’s third consecutive cut. Following similar moves in September and November, a cut this week would bring the total reduction for 2024 to one percentage point.
This consistent lowering of interest rates underscores the Federal Reserve’s response to evolving economic conditions. However, given the economy’s mixed signals, questions linger regarding the necessity of continued rate cuts. With inflation persisting above the Federal Reserve’s target and unemployment remaining resilient, central bankers face the challenge of balancing competing priorities.
Economic Landscape Shifts Ahead of Policy Decisions
Economic conditions have shifted since the FOMC’s last meeting in November. Unemployment has not risen as much as anticipated, and inflation remains stubbornly high. Historically, the Federal Reserve adjusts interest rates to manage economic growth and curb inflation—raising rates to cool an overheating economy or lowering them to stimulate spending during slowdowns. This year’s rate cuts aimed to mitigate concerns about rising unemployment. However, continued strong consumer spending and steady job data complicate the rationale for further cuts.
Despite these complexities, most analysts believe the FOMC will proceed with the widely expected rate reduction. “The Fed will likely follow through so as not to thwart expectations, but the odds it will pause in January have increased,” commented Bob Schwartz, Senior Economist at Oxford Economics. Still, debate persists, with only 63% of respondents in a recent CNBC survey agreeing that another cut is the right move, even as 93% predict it will happen.
Signals for 2025: What’s Next for Monetary Policy?
Wednesday’s meeting, the Fed’s final meeting of 2024, will offer insights into the Federal Reserve’s outlook for 2025. The release of the Summary of Economic Projections (SEP) will provide a detailed snapshot of committee members’ forecasts for unemployment, inflation, and future rate adjustments. Early expectations suggest the SEP may signal fewer rate cuts for 2025 than previously projected in September, with economists predicting an average of three cuts next year.
Chair Jerome Powell’s press conference following the policy announcement will be closely scrutinized for guidance on the central bank’s future path. “Chair Powell’s press conference will likely send a consistent signal that the Fed is set to slow the pace of rate cuts in 2025,” Deutsche Bank economists noted last week. While immediate actions appear to be set, Powell’s remarks are expected to shape market expectations and provide clarity on the trajectory of monetary policy in the new year.
As the Federal Reserve wraps up a pivotal year, the Fed’s final meeting this week will not only cap a year of policy shifts but also set the tone for the challenges of managing economic growth and stability in 2025.
