🧐 Will the Fed slow down its rate cuts after December?
Recently, the market has generally focused on whether the Fed will cut interest rates at its December meeting and whether the pace of rate cuts will slow down in 2025. At the same time, new inflation data and positive signs of economic growth have also caused analysts to question the Fed's rapid rate cuts.
According to Bloomberg data, the market now expects the Fed to cut interest rates only twice in 2025. The Fed will also update its rate cut forecast on December 18.
Although policymakers disagree on the details, Wall Street economists generally feel that the Fed's rapid pace of rate cuts may slow down.
Sarah House, senior economist at Wells Fargo, believes that by 2025, the Fed's rate cuts may slow down, and her team predicts three rate cuts next year.
The federal funds rate is currently maintained in the range of 4.5% to 4.75%, and everyone generally believes that this level is still high. Therefore, many economists believe that the Fed is working to achieve a "soft landing", that is, to reduce inflation to 2% without letting the economy decline significantly. They speculate that further easing may be in the works.
Matthew Luzzetti, chief U.S. economist at Deutsche Bank, expects the Fed to cut rates once more in December and then pause in 2025, waiting for more progress in inflation. He said there is much less urgency to cut rates, and it may be more reasonable to take it slow.
Economists at Morgan Stanley and JPMorgan Chase expect the federal funds rate to remain around 3.5%-3.75% by the end of 2025. At the same time, given the slowdown in the anti-inflation process and the fading employment risks, the Fed's pace of rate cuts will slow to once a quarter.
Greg Daco, chief economist at Ernst & Young, stressed that the Fed is cautious about rate cuts, mainly to avoid policies that are too "expansionary." Because the U.S. economic foundation is solid, too many rate cuts may cause people to worry about overheating and inflation stickiness.
At the same time, many economists have expressed concerns about the policy uncertainty brought about by Trump's new administration, especially the tariff policy that may exacerbate inflation and bring new challenges to the Fed. Strong economic growth and high inflation rates may prompt the Fed to take a more hawkish stance.