Because the Federal Reserve prepares to satisfy next week for the ultimate time in 2024, analysts are broadly predicting one last rate cut to shut out the yr.
With so many economic uncertainties looming, Wall Street is banking on the Fed to be a source of predictability. Analysts and interest-rate trackers are forecasting a high probability of a 25-point rate cut next week, bringing the federal funds rate all the way down to the 4.25%-to-4.50% range.
“COVID-era distortions appear to be fading away,” Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, said in emailed commentary. “A cut in December looks likely.”
In line with CME FedWatch, a preferred interest-rate probability tracker, there’s an 88% probability of a 25-point rate cut. A similar tool from the Federal Reserve Bank of Atlanta predicts a rate cut of that size is 80% likely. The tools predict a 14% and 18% likelihood, respectively, that rates will remain unchanged.
After keeping rates at 0% in the course of the pandemic and raising them in 2022 and 2023, the Fed cut rates of interest by 25 points in November and 50 points in September. At a news conference following November’s rate of interest cut, Fed Chair Jerome Powell described the labor market as solid and said he sees inflation sustainably cooling to the Fed’s long-run goal of two%.
In line with the minutes from that meeting, some Fed officials noted that inflation is stickier (aka harder to shake) than expected. Subsequent inflation reports confirmed that, showing headline inflation ticked up barely in October to 2.6%.
Fed officials will reconvene in Washington, D.C., on Dec. 17 and announce their decision Dec. 18.
Where are rates of interest headed in 2025?
For 2025, predictions are far less certain. Big picture, experts largely expect inflation to maintain cooling and the Fed to proceed cutting rates of interest. But there are a whole lot of unknowns with President-elect Donald Trump returning to the White House.
“Next yr is a unique story,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, told CNBC, “given the uncertainty surrounding potential tariffs and other Trump administration policies.”
Zentner explained that markets are already weighing the chance that the Fed will cut fewer times in 2025 than previously thought and that the Fed may skip a rate cut as soon because the January meeting.
J.P. Morgan is now forecasting 4 rate cuts next yr, one per quarter, changing its previous prediction of 1 25-point cut at each of the eight Fed meetings next yr. The firm now expects the Fed to stop cutting rates once they reach 3.5% — up from an earlier forecast of three%.
In line with Sofia Baig, an economist at research firm Morning Seek the advice of, tariffs — and even the threat of tariffs — could stoke inflation and complicate the Fed’s monetary policy plan next yr.
“Supply chains are already showing signs of reheating,” she said in emailed commentary, “and might be facing more headwinds in 2025 with potential economic policies like broad based tariffs.”
On Sunday, Trump clarified at the least one major query mark for the Fed. In an interview for NBC’s Meet the Press, the president-elect indicated he doesn’t have plans to inform Powell to resign, quelling rumors that he may install a recent Fed chair.
A Trump appointee, Powell has chaired the Fed since 2018.
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