Fed Poised to Cut Rates: What to Expect from the Final FOMC Meeting of 2024

Rate Decision Looms as Markets Brace for Final 2024 Move

The US Federal Reserve is widely expected to lower interest rates by 25 basis points (bps) at its final meeting of the year, scheduled for December 17-18. If confirmed, this would bring the federal funds target range to 4.25%-4.50%. The decision will be announced on Wednesday at 19:00 GMT/14:00 ET, followed by a press conference with Fed Chair Jerome Powell at 19:30 GMT/14:30 ET.

Despite inflation remaining above the Fed’s long-term target, market participants are nearly unanimous in their expectations for a rate cut. According to the CME FedWatch tool, traders currently assign a 97% probability of a 25bps reduction—an increase from 62% just a month ago.

Inflation Eases, but Fed Stays Data-Dependent

The backdrop for this anticipated rate cut lies in the evolving inflation landscape. The latest Consumer Price Index (CPI) report showed inflation rising 2.7% year-over-year, slightly above the Fed’s 2% target but in line with market expectations. Inflation has gradually eased for much of 2024, creating room for the Fed to begin cutting rates.

However, Fed Chair Jerome Powell has consistently emphasized that monetary policy remains data-driven, with inflation remaining a central focus. Any signs of stubborn inflation or economic overheating could alter the pace of future rate cuts.

2025 Outlook: Trump Policies and Uncertainty Loom Large

Looking ahead, analysts remain cautious about the Fed’s trajectory for 2025. Much of the uncertainty stems from the incoming Trump administration and its proposed economic policies.

Last week, Wells Fargo projected that the Fed would implement the anticipated 25bps rate cut at the December meeting but adopt a slower pace of easing in 2025. The bank noted that tariffs and immigration policies under Trump could influence inflation expectations, potentially limiting the scope for further cuts.

Goldman Sachs echoed similar sentiments, suggesting that the Fed may pause rate cuts in January but resume easing later in the year. In their forecast, further rate cuts could push gold prices as high as $3,000/oz by the end of 2025, even if the US Dollar continues to strengthen. The investment bank underscored that gold’s trajectory will depend heavily on the Fed’s rate policy.

Updated Projections: Fed to Release New Economic Outlook

The December meeting will also include updated quarterly economic projections, including revisions to the Fed’s dot plot—a key indicator of policymakers’ rate expectations. Analysts expect the Fed to adjust its outlook based on stronger-than-expected growth, higher inflation, and lower unemployment figures.

Philip Marey, Senior US Strategist at Rabobank, noted that the updated Summary of Economic Projections will clarify whether the Fed is solely responding to recent economic data or also factoring in post-election policy uncertainty.

“The main question for the new projections will be whether they reflect just the economic data since September or also the outcome of the elections,” Marey said.

Rabobank anticipates upward revisions to growth and inflation forecasts, alongside lower unemployment estimates. These adjustments could signal fewer rate cuts in 2025 than the September dot plot originally indicated.

Trump Policies: Inflationary Pressures and Growth Impacts

While Fed Chair Powell has stated it’s too early to factor Donald Trump’s proposed policies—such as tariffs—into forecasts, Marey raised an important question:

“Do all FOMC participants take the same approach in making their forecasts?”

Rabobank predicts that Trump’s policies could exert upward pressure on inflation in 2025 and 2026. However, the broader impact on economic growth remains uncertain. While tariffs could weigh on growth, this may be offset by potential tax cuts and deregulation.

Conclusion

The December FOMC meeting is shaping up to be a pivotal moment for markets as the Fed prepares to close out the year with a widely anticipated rate cut. However, the path forward remains clouded by uncertainty around inflation, economic data, and the policy priorities of the incoming administration.

Investors will be closely watching the Fed’s updated projections and Powell’s post-meeting comments for clues about monetary policy in 2025. For now, the central bank appears poised to tread carefully as it balances economic growth with inflationary risks.

Stay tuned for the Fed’s decision on Wednesday, December 18, at 19:00 GMT/14:00 ET, followed by the all-important press conference at 19:30 GMT/14:30 ET.

IBAFIN