The Last Fed Meeting of the Year Is a Big One
The last FOMC meeting is scheduled for Wednesday.
Happy Monday! The final FOMC meeting of the year is set to take place this week and it could be an eventful one.
Relatively benign inflation figures released last week cemented expectations of a looming rate cut.
Probabilities based on the pricing of fed funds futures suggest that there is a 97% chance that the U.S. central bank slashes its benchmark rate by 25 basis points to a range of 4.25% to 4.5%.
But after that comes a lot of uncertainty.
More Rate Cuts to Come in 2025?
Will this week’s cut be the last or are there more rate cuts to come in 2025?
Futures don’t provide much clarity. Currently, they are pricing in a 50% chance of a rate cut in March, but not much beyond that.
It’s a stark difference from what traders foresaw a few months ago, when they believed that the Fed could cut rates all throughout 2025, pushing the fed funds rate to 3% or below.
But the resilience on the jobs market and the election of Donald Trump to the presidency have changed their calculus.
If Trump deregulates and cuts taxes like he’s promised, economic growth might accelerate from its already impressive rates.
The Atlanta Fed’s GDPNow model indicates that economic growth in the fourth quarter could be tracking toward a 3.3% annualized rate.
If that number is on the mark, it would be the strongest growth for GDP since the first quarter of 2022.
The Fed would likely be hesitant to slash rates as the economy accelerates, especially with some measures of inflation still above their 2% target.
In addition to announcing its rate decision, the Fed will release its latest Summary of Economic Projections following this Wednesday’s meeting. Fed Chair Jerome Powell will also conduct his usual post-decision press conference in which he will offer his thoughts on the economy and interest rates.
