The Federal Reserve (the “Fed”) is expected to cut interest rates by 0.25% at its December meeting, bringing the total reduction to 1% since September.
Congress has tasked the Fed with focusing on inflation and unemployment rates. We have observed recently that the US economy is strong, and inflation is not declining quickly toward the targeted 2%, which may slow the pace of interest rate cuts.
The summary of economic projections at the December meeting will not reflect the policies to be implemented by President-elect Donald Trump, as he will not take office until January 20th, 2025. This will give the Fed some time to observe how things unfold.
If Fed Chairman Jerome Powell adopts a hawkish tone in his remarks after the meeting, suggesting that interest rates may not be significantly cut in 2025, we could witness market volatility. Conversely, if he adopts a dovish tone, it is likely to have a positive effect on the markets.
Investors in 2025 will monitor the 10-year Treasury yields, oil prices, and the dollar exchange rate, as all of these will be impacted by the new policies of the Trump administration.
The Bank of England is not expected to change interest rates at its upcoming meeting this year, but is likely to lower them in 2025. Similarly, the European Central Bank is likely to cut rates next year. In contrast, the Bank of Japan is expected to raise rates this year and in 2025.
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