Federal Reserve Rate Outlook

Investing.com — The Federal Reserve is expected to cut rates next week, but analysts at Macquarie indicate that strong labor market data may lead to a more hawkish perspective on interest rates.

Macquarie's analysts pointed out:
> "While the Fed will cut next week, the Fed's consensus (median) will be to tilt the outlook in a more hawkish direction than in September or November."

Currently, a 25 basis point rate cut for December 18 is nearly priced in at 90.1%, according to Investing.com's Fed Rate Monitor Tool.

Recent trends, such as a slowdown in U.S. disinflation, a lower-than-expected unemployment rate as of September, and increased financial market activity, contribute to this hawkish sentiment.

• The unemployment rate is low, below the 4.4% projection for Q4 in the Fed's September Summary of Economic Projections.
• Wage disinflation is also slowing down, becoming "sticky," similar to core PCE inflation and other inflation measures.

Additional factors influencing the Fed's caution include the drawdown of the Treasury's General Account, expected once the debt ceiling is binding on January 1, 2025. Analysts suggest this could release upwards of USD 400 billion as new liquidity, potentially stimulating inflation and the stock market.

Analysts remarked:
> "The Fed may not wish to augment this by signaling that policy rates will go much lower in Q1 2025."

The Fed's consensus view will likely resemble a "course-correction" rather than a directional change during the updated economic projections at the December meeting. In September, the Fed projected several cuts that would bring the benchmark rate to 2.9% by 2026.