Analysis: The Federal Reserve may hint at pausing interest rate cuts in early 2025.
According to ChainCatcher news, analyst Megan Leonhardt stated that although there was no progress in curbing inflation in November, federal funds futures indicate that the likelihood of Federal Reserve policymakers lowering the benchmark interest rate by another 25 basis points is almost 100%. The rationale for the rate cut may depend on the Fed officials' desire to align the benchmark rate with the current economic conditions, as inflation has significantly retreated from its peak in 2022, and the previously tight labor market is normalizing. However, if next week’s rate cut comes with Powell’s forward guidance suggesting that the Fed will seek to pause rate cuts at the beginning of the year, it would not be surprising. The Fed not only needs to control inflation in its final stages, but many fiscal policy outcomes in the coming year may change the trajectory of inflation. Additionally, there are indeed some areas of weakness in the labor market that warrant close observation. All of this presents directional challenges for the Fed in the coming months, and policymakers may avoid taking action at a startling pace.
