2024-11-19 09:06:00
Investing.com — The Federal Reserve will likely implement a 25 basis point (bp) rate cut in December, but the decision remains a “close call,” Deutsche Bank (ETR:) strategists said, citing recent comments by Federal Reserve officials.
While the Fed may lean toward cutting rates, the data-dependent nature of the central bank’s approach keeps the possibility of a pause firmly in play.
Federal Reserve Bank of Boston President Susan Collins recently remarked that a rate cut in December is “certainly on the table” but “not a done deal,” emphasizing the need for more economic data before making a definitive move.
Other Fed officials have also shared cautious comments, pointing to the risk of inflation surprises or labor market adjustments.
Core inflation has moderated but remains above target levels, with October’s core PCE index showing a 2.8% year-on-year increase.
Fed Chair Jerome Powell recently said the bank “will go slower if data permits,” while stressing the need for “more certainty to alter policy.”
“Most officials’ comments leaned at least slightly hawkish, suggesting that December meeting is a close call between cutting and skipping,” Deutsche Bank said in a note.
Powell said that financial conditions have eased, and the labor market, while cooling, remains resilient. However, uncertainties tied to fiscal policies and inflation trends complicate the outlook.
Deutsche strategists anticipate that the Fed may aim to maintain rates above 4% well into 2025, reflecting a potentially higher neutral rate in the range of 3.75%-4%.
Austan D. Goolsbee, president of the Fed Bank of Chicago, believes rates will be “a lot lower” over the following 12 to 18 months, “as long as inflation is moving towards 2%.”
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What are the potential risks if the Federal Reserve decides against lowering interest rates?
**Interview with Dr. Emily Rivera, Economist and Financial Analyst**
**Interviewer:** Thank you for joining us today, Dr. Rivera. Recent reports indicate that the Federal Reserve may implement a 25 basis point rate cut in December. Can you explain what this means for consumers and businesses?
**Dr. Rivera:** Thank you for having me. A 25 basis point rate cut essentially lowers the interest rates on loans and mortgages, which can encourage borrowing and spending. For consumers, this could mean lower monthly payments on variable-rate loans and a potential increase in disposable income. For businesses, reduced borrowing costs can lead to increased investment in growth initiatives.
**Interviewer:** The report mentions this decision is a “close call.” What factors do you think are influencing the Federal Reserve’s considerations?
**Dr. Rivera:** Absolutely. The Fed is weighing several factors, including inflation rates, employment statistics, and overall economic growth. If inflation remains steady and the job market continues to show resilience, they may feel comfortable lowering rates. However, any signs of economic instability or higher-than-expected inflation could make them hesitant.
**Interviewer:** If the rate cut does occur, how do you foresee the immediate impact on the stock market?
**Dr. Rivera:** Generally, rate cuts are seen as positive for the stock market because they can lead to increased corporate profits through cheaper borrowing costs. Investors are often optimistic in anticipation of higher economic activity. However, it’s important to note that market reactions can sometimes be unpredictable, especially if the cut was already anticipated by market participants.
**Interviewer:** Some analysts have suggested the Fed might hold off on the rate cut. What would be the potential implications of such a decision?
**Dr. Rivera:** If the Fed decides not to cut rates, it could signal confidence in current economic conditions, which might stabilize the market in the short term. However, that could also lead to concerns about the already sluggish growth and make it more difficult for consumers and businesses to cope with high borrowing costs, potentially slowing down economic recovery.
**Interviewer:** Thank you, Dr. Rivera, for breaking down these complex issues for us.
**Dr. Rivera:** My pleasure! It’s always important to stay informed as these decisions can significantly impact our economy and everyday lives.
