Futures traders are nearly certain the Federal Reserve will lower its benchmark interest rate by a quarter percentage point on Wednesday, despite persistent inflation and a strong economy. While this decision is widely anticipated, it will likely face scrutiny as some experts believe it may be premature.
Futures market traders are pricing in a near-certainty that the Fed on Wednesday will lower its benchmark overnight borrowing rate by a quarter percentage point.
Inflation is stubbornly above target, the economy is growing at about a 3% pace and the labor market is holding strong. Put it all together and it sounds like a perfect recipe for the Federal Reserve to raise interest rates or at least to stay put.That's not what is likely to happen, however, when the Federal Open Market Committee, the central bank's rate-setting entity, announces its policy decision Wednesday.
Feeling out of the loop? We'll catch you up on the Chicago news you need to know. Sign up for the weekly, the Fed's preferred inflation gauge, ticked higher in November to 2.5%, or 2.9% on the core reading that excludes food and energy.and the committee. Former Boston Fed President Eric Rosengren also recently told CNBC that he would not cut at this meeting.
While that's a considerable amount of easing in a short period of time, Fed officials have tools at their disposal to let the markets know that future cuts won't come so easily. It's the Powell parley with the media that markets will be watching most closely, followed by the dot plot. Powell recently said the Fed"can afford to be a little more cautious" about how quickly it eases amid what he characterized as a"strong" economy.
"A big preoccupation at the press conference is going to the idea of skipping meetings," he added."So it'll turn out to be, I think, a hawkish easing in that regard. As policies are actually put in place, then they may move the forecast by more."Most Wall Street forecasters see Fed officials raising their expectations for inflation and reducing the expectations for rate cuts in 2025.
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