As expected, the Federal Reserve has cut interest rates once again, to the 4.25%-4.50% range. In the statement, the central bank explains that “the economic outlook is uncertain”, and that they are attentive to “both sides of the mandate”warning of a rebound in inflation in 2025.
What the markets were watching with full attention is the number of cuts estimated for next year: in September, the last ‘dot plot’, the drawing with the forecasts of future movements calculated by the Fed members themselves, pointed to four rate cuts in 2025. The markets, however, were already betting today on just two more cuts, starting with an unchanged meeting at the end of January. And so it has been: This month’s projections point to just two cuts in the next year, amid rising inflation.
Specifically, the Fed sees inflation (the PCE, its ‘fetish’ indicator) of 2.5% in 2025, four tenths more than the last time. A fact caused by the resilience of the US economy, the persistently good consumption and production data, and the rise in prices in recent months. The so-called ‘last mile’ is costing more than expectedand the specter of possible tariffs and the trade war that Donald Trump threatens to unleash upon his return to the White House is worrying.
At the subsequent press conference, Fed Chairman Jerome Powell warned that some of the members of the Open Markets Committee (FOMC) They are already beginning to include in their projections the expectations of the possible policies of the next presidentwhich has caused the change in perspectives. A move that Powell had rejected in November, claiming that the central bank “works with the data we have, not with hypotheses.” The ‘Trump effect’ is already fully noticeable in monetary policy.
Not only that, but this decision has once again had a vote against. Beth Hammack, the current president of the Cleveland Fed, has voted against lowering rates. This marks two of the last three meetings in which there has been dissent, after Michelle Bowman voted against the half-point ‘jumbo’ cut in September.
Analysts’ expectations pointed to the need to reassure nervous markets in the face of uncertainty. “Investors expect the Fed to reiterate its view that the economy is on track for a soft landing and that the FOMC is not overly concerned about the latest pick-up in inflation data, which could signal a sustained ‘pause’ in policy cuts.” types,” says Tom Essaye, president and founder of Sevens Report and former Merrill Lynch trader.
On the other hand, dsince the Federal Reserve will apply the jumbo cut in Septemberthe panorama has changed. The labor market has shown resilience, with more than 173,000 non-farm payrolls in the last three months and unemployment at 4.2%, an unemployment rate that, although somewhat high, is low in historical terms. Currently, the Fed sees unemployment increasing to 4.3% in 2025.
As things stand, it is clear that fear has grown within the Fed of stagnating inflation above the 2% target. So much so that, although eleven members of the monetary authority have voted in favor of lowering rates, compared to Beth Hammack’s vote against, only five of them have been inclined to apply more cuts than the two planned for 2025.
#Fed #cuts #rates #basis #points #warns #rebound #inflation #due #Trump #effect
