Economists and financial markets say that the Federal Reserve will likely cut interest rates for the third time in a row later Wednesday. What the U.S. central bank says about its plans for monetary policy in 2025 may be more interesting, though.
After the meeting of the Federal Open Market Committee, Federal Reserve Chair Jerome Powell holds his news conference. Federal Reserve Board Chairman Jerome Powell talks to reporters.
At 2 p.m. EDT, the Federal Open Market Committee will say if the panel chose to change the target federal funds rate, which is also known as interest rates because it affects the cost of borrowing money across the whole country.
The three biggest investment banks in the world—Bank of America, Goldman Sachs, and JPMorgan Chase—all have economists who think the Fed will cut rates by 25 basis points, from 4.5% to 4.75% to 4.25% to 4.5%.
It would be the lowest rate since February 2023. Rates were between 5.25% and 5.5% from July 2023 to September 2023, when they were at their lowest point.
According to CME Group’s FedWatch Tool, traders mostly agree. Derivative contracts betting on monetary policy choices priced in a 98.8% chance of a 25 basis-point cut on Wednesday, while only 1.2% of contracts priced in a hold.
Are rates going to drop even more in 2025?
The Fed will make its immediate rate decision public on Wednesday, and everyone agrees on what it will say. It will also share its quarterly economic projections. That includes where each central banker thinks rates of interest will be in 2025. BofA, Goldman, and JPMorgan economists all think that the median prediction will drop from four 25-basis-point cuts next year to three. They think that the goal range for the end of 2025 will be 3.5% to 3.75%. The market isn’t as sure about even that slower rate of rate cuts. The FedWatch Tool says that by the end of next year, rates will most likely be between 3.75% and 4% or between 4% and 4.25%. In any case, it’s clear that Americans will have to get used to higher rates in the long term. Rates are very likely to stay above 3% for a long time, which is a level that was never reached from 2009 to 2021.
If Fed Chairman Jerome Powell talks about how he thinks the new government will affect the central bank at his press conference in the afternoon, it will be a hot topic because President-elect Donald Trump hinted on the campaign trail that the Fed might not be able to do its job alone. “There will probably be a lot of questions about the election and what it means for Fed policy and Fed independence,” said Michael Feroli, top U.S. economist at JPMorgan. “We doubt we’ll learn much from that discussion, though.”
2.3%. That’s what the Fed’s favorite measure of inflation, the core personal consumption spending index, showed in October. That’s awfully close to the Fed’s 2% goal, which suggests that the central bank will change direction starting in September with a huge 50 basis-point cut. Core PCE inflation hit a multidecade high of more than 5% in 2022, which was the first time the Fed raised rates in this cycle. But David Mericle, the top U.S. economist at Goldman, said that the bank’s basic prediction is that Trump’s tariffs will cause core PCE inflation to rise by 30 to 40 basis points.
“The FOMC might be afraid that making too many cuts could look bad in the future if tariffs cause inflation to rise significantly, and might therefore prefer to wait until it is clear what is going to happen,” Mericle wrote.
