The US Federal Reserve is widely expected to lower its benchmark interest rate by 25 basis points at the conclusion of its two-day meeting on December 18, 2024, marking the third consecutive rate cut this year.
This adjustment will bring the federal funds rate to a target range of 4.25%–4.5%, down from the current 4.5%–4.75%, as the central bank continues to navigate a complex economic environment.
Market Confidence in Rate Cut
Market participants have demonstrated near-unanimous confidence in the Fed’s decision, with the CME Group’s FedWatch tool signaling a 99% probability of a 25-basis-point cut.
Supporting these expectations:
- December employment data remained strong, indicating a robust labor market.
- Recent inflation readings provided further evidence that price pressures are cooling, creating room for monetary easing.
Fed Statement and Powell’s Press Conference
Fed Chair Jerome Powell is scheduled to release the policy statement at 2 p.m. ET on Wednesday, December 18 (12:30 a.m. IST on Thursday, December 19). He will then hold a press conference at 2:30 p.m. ET (1 a.m. IST).
Investors and analysts will closely analyze Powell’s remarks and the Federal Open Market Committee’s (FOMC) updated economic projections for clues about the Fed’s plans for 2025.
While this rate cut is almost certain, the possibility of further reductions in early 2025 remains uncertain:
- Markets currently assign just a 15% probability of another rate cut in January 2025.
- December’s adjustment is expected to be the final monetary policy shift under Powell’s leadership before the new Trump administration assumes office in January.
Context for the Policy Shift
The Fed’s recent rate decisions reflect a broader effort to balance its dual mandate of stable prices and maximum employment:
- The US economy has shown resilience, supported by robust consumer spending and labor market strength.
- However, moderating inflation provides the central bank with flexibility to ease rates, encouraging borrowing and investment.
The Federal Reserve’s anticipated rate cut is part of its measured approach to fostering economic growth while ensuring inflation remains under control. All eyes are now on Jerome Powell and the FOMC for signals on what lies ahead for US monetary policy in 2025.
