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Fed ends its rate-cutting cycle?
As expected, the US Federal Reserve announced a 25-basis-point rate cut at its December meeting! This decision brought the federal funds rate down to a range of 4.25%–4.50%.
According to currency strategists at Bank of America (BofA), this rate cut feels more hawkish than dovish. On top of that, the Federal Open Market Committee (FOMC) updated its outlook. The phrase “further adjustments” was replaced by “the extent and timing of further adjustments.”
BofA took this as a hint that the rate-cutting cycle is almost over. However, this wording still needs some solid confirmation.
For now, the Summary of Economic Projections (SEP) points to just two rate cuts in 2025. This cautious approach comes from rising inflation concerns. In fact, inflation forecasts for personal consumption expenditures (PCE), both headline and core, were revised up to 2.5% for next year.
The Fed’s latest macro reports reflect rising confidence in the economy. Growth forecasts ticked higher, and unemployment is expected to drop. Long-term rate projections also edged up by 12.5 basis points to 3.0%.
Fed Chair Jerome Powell previously stated that slower rate cuts were the baseline scenario. He also noted a gradual cooling in the US labor market and a downward inflation trend.
BofA strategists believe if tariffs were seen as the main inflation driver, the 2025 growth forecast would look softer.
For now, the bank sticks to its prediction of two more rate cuts in 2025. However, BofA is open to adjusting that – either up or down – depending on how things play out.
Published 27 December 2024
© InstaFintech Group
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© InstaFintech Group
