The Federal Reserve's December 2024 Interest Rate Decision
BY TIO Staff
|dezembro 16, 2024On December 18th, 2024, the Federal Open Market Committee is set to deliberate on monetary policy, with expectations of a 25 basis point reduction in the Federal Funds Rate to 4.50%. This adjustment reflects the Federal Reserve's ongoing effort to balance the competing priorities of sustaining economic growth and addressing inflationary pressures.
While a rate cut appears likely, persistent inflation challenges could complicate the final decision. This analysis explores the key drivers behind the expected rate cut, the economic forecasts shaping the Fed’s outlook, and the challenges of balancing growth and inflation.
Keep reading to learn more.
US Economic Performance
Recent projections show the U.S. economy performing better than initially forecasted. Growth estimates for 2024 have been raised to approximately 2.5%, up from 2%, while the median unemployment rate is projected to drop from 4.4% to 4.2%. These revisions signal a resilient economic environment, with the labor market showing continued strength. A strong job market supports the Fed's decision to adjust rates, aiming to stimulate further economic activity.
However, this optimistic outlook is tempered by inflationary pressures. November’s Consumer Price Index (CPI) revealed a year-over-year increase of 2.7%, marginally higher than October's 2.6%. Meanwhile, core CPI, excluding volatile food and energy components, rose by 3.3% annually and 0.3% monthly. These figures highlight the persistent challenge inflation poses, complicating the Fed's rate-cut decision.
Inflation remains a critical hurdle for the Federal Reserve, even as it considers easing monetary policy. Shelter costs, a significant CPI component, increased by 0.3% in November, down slightly from October's 0.4%. Although this suggests minor progress, inflationary trends remain sticky.
What this could mean for the USD
According to data from Trading Central on our economic calendar, for historical events;
- The price change on the USDJPY for the past 8 events ended bearish 75% of the time, over a 1 hour period after the announcement.
- The average price range for the USDJPY over a 1 hour period after the announcement was about 100 pips.
Conclusion
The Federal Reserve’s potential December rate cut underscores its strategic approach to fostering economic growth while addressing inflationary risks. This policy adjustment, though significant, carries inherent challenges due to persistent price pressures. As the Fed navigates these economic complexities, its ability to maintain a careful balance between growth and inflation will be crucial. The months ahead will reveal whether this strategy successfully supports the U.S. economy’s progress into 2025 and beyond.
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