Wall Street analysts are closely monitoring this week’s Federal Reserve meeting, which might signal the end of rate cuts for some time.
The Federal Reserve is set to hold its final meeting of the year, with many expecting a 25-basis point rate cut. However, speculation arises as some predict this could be the last rate cut for a while given the robust state of the economy. Yardeni Research anticipates that Fed Chair Jerome Powell will convey a pause in rate reductions during his post-meeting press conference, following a series of cuts amounting to 100 basis points since September.
Economic indicators, such as the Atlanta Federal Reserve’s GDPNow projection, forecast a 3.3% annualized growth rate for the fourth quarter, highlighting the economy’s strength. Combined with recent signs of reversing inflation trends, these factors suggest that further interest rate cuts may no longer be necessary. “The reason for not cutting the FFR again early next year is not just because economic growth and inflation remain strong but because both might get hotter with further cutting,” noted Yardeni Research.
Goldman Sachs’ chief economist Jan Hatzius mirrors this sentiment, predicting a slowdown in the pace of rate cuts. Hatzius has adjusted his forecasts, removing a January rate cut and anticipating only two 25-basis point cuts in 2025. The futures market concurs, indicating a mere 15% probability of a January rate reduction.
Meanwhile, Apollo’s chief economist Torsten Sløk warns of a possible rate hike next year, considering recent inflation data. There are concerns that the current downward trend in inflation might plateau, raising the potential for inflation to pick up, reminiscent of experiences in the 1970s. Sløk stated, “Recent inflation readings show signs that the decline in inflation has stalled, and there is a risk of acceleration.” He added that robust economic momentum could lead to an inflationary rebound by 2025, potentially necessitating rate hikes.
Market tools like the CME FedWatch Tool reflect skepticism about future rate cuts, with only a 0.1% chance of a rate increase next year. This landscape presents a complex picture, where the Fed’s future actions remain uncertain, influenced by the evolving state of the economy and inflation dynamics.
The anticipation surrounding the Federal Reserve’s upcoming decisions highlights the complex interplay between economic growth, inflation trends, and monetary policy. As the Fed prepares to potentially pause its rate cut cycle, all eyes remain on incoming data to navigate future monetary actions.
Source: Businessinsider
