Federal Reserve set to trim interest rates despite increasing concerns over higher inflation
The United States (US) Federal Reserve (Fed) will announce its interest rate decision on Wednesday, with markets widely expecting the US central bank to deliver a final 25 bps cut for 2025. While the move is widely priced in, this may be overshadowed by the vote itself as dissent within the Committee is anticipated from both hawks and doves.
Along with its interest rate decision, the Fed will also publish the Monetary Policy Statement, alongside the revised Summary of Economic Projections (SEP), following the December policy meeting on Wednesday.
The CME FedWatch Tool shows that investors are pricing in about a 90% probability of a 25 bps reduction in December to the 3.5%-3.75% range, but see a high likelihood of a policy hold in January. The last SEP, published in September, showed that policymakers’ projections implied a 25 bps reduction in 2026.
According to a recently-conducted Reuters poll, 89 of 108 economists have predicted that the Fed will opt for a 25 bps cut in December. Additionally, half of the polled economists saw the US central bank cutting the policy rate by another 25 bps to the range of 3.25%-3.5% in the first quarter of 2026.
While economists expect modest revisions in the growth and inflation projections, the market’s attention will be on Fed Chair Jerome Powell’s words and tone, which will try to reflect the divergent opinions of a deeply divided committee.
In the post-meeting press conference, Powell will also likely be asked about his potential successor next year, US President Donald Trump’s chief economic adviser Kevin Hassett. Markets expect Hassett to steer the policy towards a looser path if chosen as the new chair.
TD Securities analysts see the Fed adopting a hawkish tone after cutting the policy rate.
“We expect the FOMC to cut another 25bp. The decision to remain on an easing path will be equally or more contentious than October's, and we look for the final rate cut of the year to result in decidedly more hawkish guidance. We expect the Board at large to fully support the decision to ease in December, while hawkish regional Fed presidents are likely to show dissent,” they explain.
Source : Fxstreet.com
