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16 Dec 2024

Econ Digest

FOMC meeting, December 17-18, 2024: The Fed is expected to cut its policy rate by 0.25% and signal fewer than four rate cuts next year

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        At the FOMC meeting slated for December 17-18, 2024, the US Federal Reserve (Fed) is expected to lower the policy rate by 0.25% to a range of 4.25-4.50%, as November inflation and employment figures largely aligned with market expectations. The headline inflation rate for November 2024 accelerated to 2.7%, while the unemployment rate rose to 4.2%, reflecting murky conditions in the US labor market. Additionally, non-farm payrolls increased after a drop in the previous month, when the market experienced disruptions from a major hurricane and labor union strikes in the port and aviation industries.

        However, the direction of US monetary policy in 2025 remains highly uncertain. KResearch views that the Fed may cut the policy rate fewer than four times, falling short of the projection in the September 2024 Dot Plot. The key supporting factors include:
  • Fed Chair Jerome Powell’s signal that the Fed is likely to adopt a more cautious approach amid stronger-than-expected economic growth and a stickier-than-expected inflation outlook in the US. Consumer spending remains robust, as reflected in the continued expansion of retail sales in November 2024. Meanwhile, both the headline inflation rate and the core inflation rate, as measured by the personal consumption expenditures (PCE) price index, which the Fed closely monitors, accelerated in October 2024.
  • US economic policies under President Donald Trump could exert upward pressure on domestic inflation. Close attention must be paid to policy announcements following Trump’s inauguration on January 20, 2025. Measures – particularly import tariff hikes, immigration restrictions, and income tax cuts – are likely to heighten inflationary pressures.
        
        At the upcoming FOMC meeting, economic and inflation projections will be released. KResearch expects that the Fed may signal fewer policy rate cuts in 2025, compared to the four cuts previously projected at the September 2024 meeting. Additionally, the Fed might revise its forecasts for economic growth and inflation in 2025 upward, compared to prior estimates.

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