As the last 'super central bank week' of 2024 approaches, investors are undoubtedly most concerned about the actions of the Federal Reserve. Apart from interest rate decisions, they are more concerned about next year's interest rate prospects.
In the early morning of Thursday (December 19th) Beijing time, the Federal Reserve will announce its interest rate decision. It is expected that the Fed will likely cut interest rates by 25 basis points, achieving a "triple reduction", even if inflation shows a trend of resurgence. This move will lower the benchmark interest rate of the Federal Reserve to the range of 4.25% -4.5%, a full percentage point lower than the peak in early September.
Raymond James, Chief Economist Eugenio Aleman, said, "They (the Federal Reserve) will not disappoint the market this week
Press the 'pause button' during the loose cycle
Krishna Guha, Vice Chairman of Evercore ISI, stated that "the FOMC meeting in December will mark the end of the first phase of the Fed's rate cut cycle." He speculated that Fed Chairman Powell would introduce the next phase of policy by emphasizing uncertainty at a press conference.
Powell will make it clear that although the Federal Reserve continues to lean towards cautiously lowering interest rates... it is now entering a different, more cautious policy phase. A more ambiguous attitude will be taken regarding the timing and magnitude of further interest rate cuts, "he added.
In September this year, Federal Reserve officials expected to cut interest rates four times by 2025, that is, once every quarter. But Aleman believes that the Federal Reserve will send signals of minimal interest rate cuts, which is consistent with market expectations.
I think they will cut interest rates at most twice next year, "he said.
Guha stated that the Federal Reserve will cut interest rates three times next year. He said that this is a 'pigeon faction on the surface'.
Carl Weinberg, Chief Economist of High Frequency Economics, has stated that by 2025, when the Federal Reserve sees the first fiscal policy measures of the Trump administration, such as tariffs, they will face a 'wall of concern'.
I don't think there's much possibility of a rate cut next year, "he said.
However, Weinberg believes that the Federal Reserve's new economic forecast will not include its views on Trump's proposal.
Undoubtedly, an important shift is happening. However, Powell stated that the Federal Reserve will not make any assumptions about Trump's plan in advance. There are many different pieces of information pointing in different directions. Making policy decisions under so much uncertainty is not easy. The Federal Reserve is aware of all these risks and will guide future policies very, very cautiously, "he said.
The road ahead is difficult
Federal Reserve observers say they expect a heated debate between officials who support interest rate cuts and those who support suspending them at this meeting.
Former Dallas Federal Reserve Bank President Robert Kaplan said, "This decision was not made without thinking
Kaplan said, "Ultimately, the Federal Reserve needs to ensure that the level of interest rates after interest rate cuts still puts some downward pressure on demand, thereby limiting inflation and reducing the risk of economic recession caused by interest rates
At present, most Federal Reserve officials still believe that the funds rate is much higher than the neutral level that will not cause any downward or upward pressure on demand.
Former Federal Reserve Governor Larry Meyer stated in a report to clients, 'However, it is widely believed that the estimate for the neutral rate is highly uncertain.'. He added that this made the decision very difficult.