Fed Poised for December Rate Cut, But Will Powell Signal a Pause in 2025?

Although inflation showed limited improvement in November, futures contracts for federal funds suggest a nearly certain 25 basis point rate cut at the Federal Reserve's meeting on December 17-18, according to analyst Megan Leonhardt.

While the rate cut is widely expected, there’s speculation that Fed Chairman Jerome Powell may pair the decision with a signal that further cuts could be paused in the early months of 2025.

Leonhardt emphasized that Powell’s statement might suggest the Fed will hold off on additional cuts after the December adjustment, given the complexities policymakers face in navigating the economic landscape.

Meanwhile, Goldman Sachs has also confirmed its prediction of a rate reduction this month, but it anticipates further cuts in January and March 2025, as well as potentially in June and September.

However, the bank cautioned that some Federal Open Market Committee (FOMC) members are now leaning toward a slower pace of cuts than initially expected, increasing the uncertainty regarding future decisions.

Despite current market expectations for a December rate cut, stronger-than-expected economic data in November has raised doubts about the Fed’s path in early 2025. As the market looks ahead, all attention will be on Powell’s comments and the Fed’s updated forecasts, which could provide clarity on the future direction of fiscal policy and inflation management.