US Fed rate cut and 2025 economic outlook
By Handzalah / Black Swan Research 20 Dec 2024, 10:50pm MYT
Provided by tradingeconomics.com
(Dec 20.): On Wednesday the US federal reserve cut 25 bps off of the Fed fund rate. The range for the Fed fund rate sits on 4.25% to 4.50%. The projection for cuts in 2025 was reduced by half. And the members of the fed expects to end 2025 with Fed fund rate of 3.9%, the result of 2 rate cuts.
Lower labor market risks and uncertain inflationary pressures were mentioned. They raised the longer-term interest rate from 2.9% to 3.0%.
During the second half of 2024, the economy experienced higher than expected growth. The Fed believes that they are currently close to the neutral rate.
Core personal consumption expenditures price index, the Fed’s preferred inflation measure, forecast got raised from 2.2% to 2.5%. This shows the stubborn inflation is still prevailing. Unemployment rate forecast for 2025 is expected to be 4.3%, prior estimates were higher at 4.4%.
The strength from the labor market coincides with the stronger economy. Powell mentioned how he believes the Fed has successfully avoided a recession. GDP estimates for 2025 rose from prior estimates of 2.0% to 2.1%.
S&P and the Dow saw their largest day decline since August 5. While the Russell saw largest drop since June 16, 2023.
Housing market remain weak in part due to policies set by the Fed. The Fed believes that the labor market is not a source of inflationary pressures. They also believe that the policy stance is less restrictive. Median projection of Fed fund rate is 3.9% and 3.4% in 2025 and 2026, respectively.
Trailing twelve month inflation was sideways partly due to very low inflation at the 4th quarter 2023. They are still uncertain of the effects of new policies set by Trump and are waiting to see the effects of such policies. The fed mentions how the labor market is gradually softening.
The headline inflation, which is core PCE with food and energy included, is expected to be greater than core PCE. They believe that core PCE is a better indicator of headline inflation compared to headline inflation itself.