Big Week Has Arrived: Here are Analyst Opinions on the Interest Rate Decision that FED will Announce This Week!

Analyst Megan Leonhardt noted that despite limited progress in reducing inflation in November, the federal fund futures indicate almost a 100% probability of the Fed lowering the benchmark interest rate by 25 basis points at the meeting on 17-18 December.

Although a rate cut seems close in December, Leonhardt warned that Fed Chairman Jerome Powell could accompany this decision with a directive indicating that interest rate cuts may be paused early next year.

Leonhardt, pointing out the directional challenges policymakers face in balancing economic signals, added, 'Don't be surprised if next week's interest rate cut is combined with Powell's statement that the Fed will pause interest rate cuts at the beginning of the year.'

Goldman Sachs reiterated its expectations of an interest rate cut in December, saying it is an inevitable outcome. The investment bank also predicts additional cuts of 25 basis points in January and March 2025, with the possibility of further cuts in the June and September meetings. However, Goldman noted that some members of the Federal Open Market Committee (FOMC) have expressed willingness to slow down the rate cut cycle earlier than initially expected, highlighting increased uncertainty about the pace of future cuts.

As a result, the risk of a pause in the January meeting is increasing despite current market expectations. Investors are pricing in a 97% probability of a 25 basis point cut in December, but stronger-than-expected economic data in November has raised concerns about the path the FED will follow in early 2025.

All eyes will be on Powell's post-meeting speech this week and the Fed's updated economic projections. These will likely provide important information about the Fed's strategy for managing inflation, overcoming fiscal policy challenges, and responding to vulnerabilities in the labor market.