The Federal Reserve will make its final decision on interest rates in 2024 on Wednesday, capping a year in which the central bank offered some financial relief to inflation-weary borrowers in September by introducing its first reduction in four years.
On Dec. 18, the Federal Reserve is likely to make its third straight tapering in 2024, according to economists polled by financial data firm FactSet. However, many experts are also bracing for a slower pace of cuts in 2025 given the country’s still-sticky inflation rate and some of President-elect Donald Trump’s proposed economic policies, which, if enacted, could be inflationary.
The Federal Reserve has been battling inflation since March 2022, when it began raising rates to cool the economy, eventually pushing its benchmark rate to its highest level in 23 years. Although inflation has moderated considerably since then, the consumer price index for November up 2.7%exceeding the Fed’s goal of reducing inflation to an annual rate of 2%.
This indicates that the battle against inflation is not yet over, although the November inflation report was in line with economists’ expectations. At the same time, the unemployment rate has risen steadily this year, stoking the Fed’s concerns about labor market weakness and helping open the door to its recent rate cuts, one economist noted.
“The Fed will likely move forward with another 25 basis point cut at its December meeting,” Jacob Channel, senior economist at LendingTree, noted in an email, adding: “This could be the last cut for a time,” he said. .
“Since the policies of the incoming Trump administration could lead to a resurgence of inflation or otherwise destabilize the economy, the Fed may choose to take a wait-and-see approach and keep rates steady at its January meeting,” Channel noted.
What date is the Federal Reserve meeting in December?
The Federal Reserve’s Federal Open Market Committee (FOMC) meeting is December 17-18, marking its last meeting of the year.
What time does the Federal Reserve announce rates?
The central bank will announce its rate decision on December 18 at 2 pm ET.
This will be followed by a press conference with Federal Reserve Chairman Jerome Powell at 2:30 pm ET, during which Powell will discuss the Fed’s economic outlook and take questions from reporters.
Will the Fed cut rates in December?
About 9 in 10 economists polled by financial data firm FactSet expect the Fed to cut its benchmark rate by 0.25 percentage points on Wednesday.
If that happens, the federal funds rate (the interest rate banks charge each other for short-term loans) will drop to a range of 4.25% to 4.5%, below its range current target of 4.5% to 4.75%.
That would mark the Fed’s third consecutive rate cut this year, which began with a whopping 0.5 percentage point cut in September, followed by a Reduction of 0.25 percentage points at their November meeting.
How will another rate cut affect my money?
Any reduction in the federal funds rate could ease borrowing costs for millions of Americans. But a 0.25 percentage point cut isn’t likely to make that much of a difference, with LendingTree chief credit analyst Matt Schulz noting that it “may knock a dollar or two off your monthly debt payment.”
“Another rate cut is welcome news at the end of a chaotic year, but it ultimately doesn’t mean much for those with debt,” Schulz said.
Still, new credit card APR rates have declined to 24.43% from 24.92% in September, according to data from LendingTree. Loan rates for other products, such as home equity lines of credit, have also fallen.
Despite the rate cuts, mortgages haven’t moved much and remain near 20-year highs, leaving many homebuyers disappointed. While the Fed’s benchmark rate influences home borrowing costs, mortgages are also affected by broader economic trends and changes in the yield on the US 10-year Treasury note.
“Going forward, mortgage rates will likely continue to fluctuate on a weekly basis and it’s impossible to say with certainty where they will end up,” said LendingTree’s Channel.
What is happening to inflation and the economy?
Inflation, or the rate at which the prices of goods and services change over time, has cooled since hitting a 40-year high of 9.1% in June 2022.
The Fed began raising its benchmark rate in 2022 in order to curb economic demand and control inflation. But while inflation has eased since its peak in 2022, the prices of many goods and services are still considerably higher than before the pandemic.
And prices are likely to remain high unless there is a period of deflation, which usually only happens during a severe economic downturn, such as a recession.
This has left many Americans feeling the pinch financially, with millions taking their frustrations to the polls last month and voting for Trump. economic view to end “the nightmare of inflation”.
How might Trump’s economic plans affect the Fed?
Although Trump has promised to tackle rising prices, some of his policies could prove inflationary, according to Wall Street economists. For example, Trump last month plans presented place a 25% tariff on all imports from Mexico and Canada on Inauguration Day, January 20.
The president-elect also said he intends to levy an additional 10 percent tax on all imports from China.
But tariffs are essentially consumption taxes that consumers usually pay. In other words, American shoppers could end up paying more for everything from avocados imported from Mexico to TVs made in China.
Because of the potential for inflation to rise in 2025 if Trump enacts sweeping tariffs, many economists expect the Fed to slow or hold off on its rate decisions next year with a wait-and-see approach.
“Fed officials may prefer to be cautious in light of uncertainty about the new administration’s policies, particularly potential rate hikes,” Goldman Sachs economists noted in a Dec. 15 research report .
Will the Federal Reserve Cut Rates in 2025?
Economists expect the Fed to continue cutting rates next year, although some are scaling back the number of cuts they have marked.
The Fed will release its Summary of Economic Projections (SEP) on December 18, which will provide a glimpse of what the FOMC expects in 2025.
The Fed’s outlook is likely to forecast three rate cuts in 2025 of 0.25 percentage points each, compared to the four rate cuts the central bank had forecast when it last published the SEP in September, according to EY chief economist Gregory Daco in an email.
At his press conference on Wednesday, Powell could “reiterate the familiar metaphor of moving slowly in a dark room full of objects to justify a potential rate cut at the January meeting,” Daco added.