By Derek Saul | Forbes
The Federal Reserve is widely expected to lower the federal funds rate for a second consecutive time Thursday, but the economic policies floated by President-elect Donald Trump have some economists questioning the path of interest rates heading into next year.
Key Facts
- The Fed will release its interest rate decision at 2 p.m. EST at the conclusion of the policy-setting Federal Open Markets Committee’s two-day meeting, with Fed Chairman Jerome Powell scheduled to address the public shortly after.
- The announcement follows the central bank’s September summit, in which the Fed announced the first rate cut since March 2020, rolling out a supersized 50 basis-point move.
- Economists and investors alike heavily anticipate a 0.25 percentage-point cut Thursday.
- The CME Group’s FedWatch Tool, which tracks derivatives contracts betting on the federal funds rate, prices in a 99% chance of a 25 basis-point cut to a target range of 4.5% to 4.75%.
Though this week’s move from the Fed is not expected to bring much drama, economists at major banks noted following this week’s election there’s added variability moving forward, potentially jeopardizing the pace and magnitude of further rate cuts. “The various policy uncertainties may lead the Fed to move more slowly than it otherwise would,” wrote JPMorgan Chase’s chief U.S. economist Michael Feroli in a Wednesday note to clients, predicting one rate cut per quarter until reaching 3.5%. Bank of America’s senior U.S. economist cautions Trump’s aggressive tariff proposals “could derail the Fed cutting cycle” and the Fed will decline to further lower rates if major import taxes are announced, noting the Fed “will err on the side of caution” in evaluating the inflationary effects of tariffs. And Deutsche Bank chief U.S. economist Matthew Luzzetti notes it’s a “hawkish” outlook for the Fed heading into 2025, nodding to the potential for “stickier” inflation due to tariffs.
