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Experts Say Fed Will Cut Rates Next Week. But What’s Next?


After nearly two years of rising interest rates, the Fed is expected to cut rates for the third time this year at the third meeting of the Federal Open Market Committee.

The Fed’s monetary policy has a major impact on the economy, impact spend and borrow US family and business practices. When the Fed raises its interest rate to reduce inflation, the money supply shrinks and the economy is expected to shrink. When currencies fall in value, banks ease the financial burden on consumers, making borrowing less expensive, from car loans to cards to mortgage loans.

A 0.25% interest rate cut on December 18 will affect US households, however the immediate impact may be minimal. The federal funds rate has been steady at 5.25% to 5.5% for more than a year, and the third cut will lower it to 4.25% to 4.5%.

Rental rates remain high until 2025, and experts say this could be the last rate cut for a while. Financial markets are betting that the central bank will delay further interest rate cuts next year or stop them entirely.

Expect further cuts at next week’s Fed meeting

Since the Fed’s role is to balance most jobs and stabilize prices, it weighs heavily on a monthly basis. Bureau of Labor Statistics job report and Consumer Price Index Report when choosing to raise or lower the federal funds rate, the rate used by banks to borrow and lend to each other overnight.

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The annual decline is rising gradually, falling to 2.7% from 9.1% in the middle of 2022. But the price growth remains stubborn, and inflationary problems are expected to increase with the next administration.

The labor market also works. In September, in a sign that the labor market was slowing, the central bank began cutting interest rates to prevent a recession. Today, unemployment is higher than last year’s drop (4.2% versus 3.4%), but the labor market is not falling.

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Following the release of jobs and inflation data earlier this week, market expectations have sharply changed to 96% for a quarterly cut, according to CME FedWatch tool.

Many analysts believe that with a third recession already in the books this year, economic conditions would need to change significantly for the Fed to change its plans.

“(Fed Chair Jerome) Powell has led the markets to believe that the Fed will cut, and they don’t want to upset the markets,” he said. Robert Fryeconomist at Robert Fry Economics.

Expect lower interest rates in 2025

Since inflationary progress has been halted, the Fund will not cut rates again until there are permanent signs of cooling. September Summary of Economic Projections He predicted four rate cuts in 2025, and the Fed will release new information at its next meeting.

“I now expect a double reduction in 2025 compared to the four I was expecting a few months ago,” Fry said.

If the central bank cuts rates next week, Preston CaldwellUS economist at Morningstar, does not expect further cuts after the inauguration of President Donald Trump.

“If they cut in December, there’s a good chance they won’t cut in January,” Caldwell said. “If they’re going to stop in December, then they’re going to go ahead and cut it in January.”

Even if the Fed decides to cut interest rates in March, monetary policy will continue to depend on future economic data. Inflation remains above the Fed’s annual target of 2%, and Trump’s economic policy may change the Fed’s approach in 2025.

For example, Trump’s promise to impose tariffs on imports from several countries, including China and Mexico, would raise tariffs on imports. Often, businesses pass that price down as consumer prices rise, which can lead to inflation.

But the result was not visible. University of Central Florida Economist Old Snaith they see tariffs as a negotiation process, which is part of negotiations between the US and its trading partners, rather than policies that can be followed. “During the first Trump administration, we saw some tariffs being put in place,” Snaith said. “There were cries of fear that it would lead to inflation at the time, and that didn’t show itself.”

Regardless of the Fed’s decisions, if you plan borrowing money to buy a house or car, or there is credit loan, pay attention to your annual rate. Shop around to find the best rates before you rent. If you have credit card debt, consider a credit card with a 0% introductory period to get a break from high APRs. And even if it becomes cheaper to borrow in the long run, remember that low interest rates also mean lower yields. savings accounts.

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