Federal Reserve to halt interest rate adjustments following a rate reduction.
Rewritten Article:
The Federal Reserve got busy once more, dropping the interest rate by a quarter point last night, bringing it down to a range of 4.25% to 4.5%. This marks the third such cut this year, as decided by the Federal Open Market Committee (FOMC). Trump's effects on the economy are grabbing plenty of attention, with some analysts eagerly awaiting new rate projections from FOMC members.
Back in September, the Fed was expecting four rate cuts by 2025. Now, FOMC members are suggesting only two rate cuts in total, amounting to 50 basis points lower. With Trump's second term on the horizon, a rate pause is expected at the next meeting in January. As Michael Heise, Chief Economist at HQ Trust, puts it, "The specific measures of the new administration likely won't be finalized yet, so it's likely the Fed will implement a rate pause at its meeting in January."
The Fed is currently feeling less optimistic about inflation. According to their latest projections, median inflation is expected to hit 2.5% in 2025, up from the previous estimate of 2.1%. The labor market continues to chug along, with 227,000 net new jobs created outside of agriculture in November, despite statistical blips caused by hurricanes and strikes. The unemployment rate went up to 4.2%.
Inflation might be a worry in the coming year. If Trump's trade policies and immigrant deportation plans work as intended, they could fire up inflation in the U.S. The Fed might be forced to keep a tighter leash on monetary policy next year, assuming the economy stays strong. However, if protectionism and countermeasures from other countries weaken the U.S. economy, the Fed will find itself cornered. With both price stability and full employment mandates to balance, it might face tough decisions like rasing rates to control inflation while trying to keep jobs rolling in.
Back in the heady days before the pandemic, the Fed might have responded to aggressive tariffs or trade restrictions with rate hikes or tightened forward guidance. But today, evolving monetary policy strategies are designed to better balance employment and inflation objectives. Gone are the days of flexible average inflation targeting, with the G30 report now advocating for average inflation targeting to provide a clearer path for the Fed. The Fed is also refining its communication to prevent market volatility by making trade-offs between inflation and employment more transparent.
- The Federal Reserve, after three rate cuts this year, is now considering only two additional cuts by 2025, signifying a pause in hikes in their finance policy at the January meeting next year, as pessimism about inflation rises.
- Michael Heise, Chief Economist at HQ Trust, posits that the specific measures of Trump's second term administration are yet to be finalized, suggesting a rate pause in January.
- In contrast to their September expectations, the Fed's latest projections have revealed a median inflation estimate of 2.5% in 2025, a 0.4% increase.
- The Fed's growing focus on business stabilization, rather than aggressive rate hikes, is evidenced by their shift towards average inflation targeting and refined communication strategies to maintain balance between employment and inflation objectives.
