Federal Reserve Interest Rate Cut Forecast and Economic Outlook
According to analysts, despite the lack of significant progress in curbing inflation in November, federal funds futures indicate that the likelihood of the Federal Reserve cutting rates by another 25 basis points at the upcoming meeting is nearly 100%. The rationale behind this rate cut decision may be based on the Fed's desire to align the benchmark interest rate with the current economic environment.
Why has a rate cut become a reality?
Inflation Decline: Since the peak in 2022, inflation has significantly decreased, easing the pressure on the Fed to continue raising rates. Labor Market: Although the labor market was previously tight, it is now gradually normalizing, reducing reliance on rate hikes.
However, if after a rate cut next week, Fed Chair Powell's forward guidance suggests a potential pause in rate cuts in the future, it should not come as a surprise. Policymakers are dealing with:
Controlling Inflation in the Final Stages: Although inflation has declined, caution is still required to ensure it continues to decrease steadily. Changes in Fiscal Policy: The outcomes of fiscal policy in the coming year could have significant impacts on inflation, requiring attention to its changes. Weakness in the Labor Market: Although some sectors are showing signs of weakness, this could also affect the momentum of economic growth.
Looking Ahead:
The challenge facing the Fed is to balance the need for inflation control with the necessity of economic growth. Policymakers are expected to adopt a cautious approach, avoiding too rapid actions to ensure market stability. The direction of policy in the coming months, especially in early 2024, will have profound implications for the economic situation.
