FOMC Meeting Expectations: Will Fed Chair Jerome Powell-Led Panel Cut Rates?

As the Federal Reserve’s final policy meeting of 2024 kicks off on December 17, global financial markets are focused on the Federal Open Market Committee’s (FOMC) verdict on interest rates. 

The meeting occurs against a backdrop of economic uncertainty and geopolitical risks, further complicated by an impending political shift in the United States. Donald Trump, set to take office as the 47th President on January 20, 2025, adds another layer of complexity to the Fed’s decision-making.

The Federal Reserve’s updated economic projections for 2025 will be pivotal. Key metrics such as inflation trends, employment data, and GDP growth forecasts will shape the monetary policy landscape under the new administration. Economists and market participants are particularly interested in how Fed Chair Jerome Powell’s panel will navigate this transition.

When and Where: Details of the FOMC Meeting
The two-day FOMC meeting began on December 17 and concludes today, December 18. A press conference hosted by Jerome Powell will take place at 2:00 PM ET (11:30 PM IST), where the Fed Chair will outline the policy decisions and forward guidance.

The markets are pricing in a 95% likelihood of a 25-basis-point rate cut, as per CME’s Fed Watch Tool cited in the report by Reuters. Experts agree that this move is almost certain, but what remains in focus are the Fed’s projections for the coming year.

A Rate Cut Likely, But Fewer Cuts Ahead?
According to a Bloomberg report, there is a near-consensus among economists that the Federal Reserve will cut interest rates by 0.25 percentage points today. However, the forward guidance may indicate fewer rate cuts in 2025 than previously forecast.

Garima Kapoor, Chief Economist at Elara Capital, remarked, “While we expect the Fed Chair to cut policy rates today despite a relatively strong economic backdrop, the commentary is likely to be neutral to hawkish. FOMC projections reflecting more rate cuts than in September 2024 seem unlikely, leaving either of the two options: unchanged projections or reflecting slower and/or fewer rate cuts. In either case, the policy is likely to be positive for the US Dollar .”

The updated “dot plot,” which reflects Fed policymakers’ expectations for future rate changes, will be key. Geoff Dennis, an independent emerging markets commentator, shared, “I expect the Fed to cut interest rates by 25bp this week; such a move will not be a surprise. The main market focus will be on how many rate cuts are implied for 2025 in the Fed’s new dot plot. My view is they will go for two 25bp cuts next year, down from an assumption of four cuts last September.”

Inflation: The Sticky Challenge
The Federal Reserve’s battle with inflation is far from over. The latest consumer price index (CPI) data for November revealed a 0.3% monthly rise and a 2.7% annual increase. These figures matched economists’ expectations but underscored the persistence of inflation above the Fed’s 2% target, as per the report by Reuters.

“A Fed rate cut on December 18th is a near certainty. What will be more interesting will be the Fed’s forecast for 2025. The markets will move on the Fed outlook for U.S. GDP, inflation, and the way ahead on further rate cuts in 2025,” noted Ajay Bagga, Executive Chairman of OPC Asset Solutions.

Global Impact: Market Reactions and Commodities
Gold prices reacted positively to the inflation data, signalling increased confidence in a Fed rate cut. Spot gold climbed 0.9% to $2,717.29 per ounce, while US gold futures settled 1.4% higher at $2,756.70. 

The record highs in gold prices indicate market jitters as investors hedge against potential economic slowdowns.
Meanwhile, Indian government bond yields rose slightly on Tuesday, with the benchmark yield crossing the 6.75% mark. The rupee’s continued decline to a record low has heightened investor caution ahead of the Fed’s decision, as per the report by Reuters. 

What Lies Ahead?
The FOMC’s decision today will set the tone for US monetary policy in 2025. While the anticipated rate cut of 25 basis points is largely priced in, the accompanying forward guidance will clarify the path ahead.

Geoff Dennis further highlighted, “The expectation of fewer rate cuts will be based on the resilience of the economy, the stall in the decline of inflation, and the sheer uncertainty about the exact content of the returning President Trump’s policies on tariffs and taxes.”
 
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