The Fed cut interest rates in November and more rate cuts are on the way

The Federal Reserve cut interest rates by 0.25% on November 7th. The labor market has weakened and year-over-year inflation rates have fallen, leaving the door open for further rate cuts in the future. The Federal Open Market Committee’s September 2024 forecasts reflected expectations of interest rate cuts by the end of 2026.

Federal Reserve cuts interest rates

The Fed cut interest rates by 0.25% on November 7, targeting a range between 4.5% and 4.75%. The 0.25% rate cut was expected and is expected to support stock prices, industrial commodity prices and bond prices while weighing on the dollar.

Following the release of the Fed statement at 2:00 p.m. ET, Fed Chairman Powell faced a barrage of questions in his press conference at 2:30 p.m. ET about the Fed’s decision to cut interest rates and when the Fed will do one Suspension of interest rate cuts could be considered. Powell also deftly dodged a number of political questions in the press conference, which took place just two days after the 2024 US election.

Looking at the Fed’s future interest rate policy, Prestige Economics expects a 0.25% rate cut in December 2024 and further rate cuts in 2025 and 2026.

The prospect of further interest rate cuts following a quick and decisive outcome in the presidential election is supporting business and consumer confidence, economic activity and financial markets.

ForbesThe Fed just cut interest rates, and more rate cuts are on the wayFrom Jason Schenker

Looking back to look forward

The Federal Open Market Committee’s expectations for future interest rates are published once a quarter. The last release was in September 2024, the next release will be in December 2024.

While no FOMC forecasts were released on November 7, the September 2024 median FOMC forecasts conveyed the expectation that the federal funds rate would be 4.4% at the end of 2024, 3.4% at the end of 2025, and 2.9% at the end of 2026 becomes.

These forecasts assume there will be another 0.25% rate cut this year, followed by another 1% rate cut in 2025 and then 0.5% in 2026.

Although these forecasts are often subject to significant change, they clearly indicate lower interest rates in the future. FOMC members likely believe they can cut rates further as these pose risk factors for the Fed’s dual mandate shift.

ForbesFed rate cuts due in October 2024 after weak payrollsFrom Jason Schenker

The dynamics of the dual mandate support further interest rate cuts

The Fed has the dual mission of promoting full employment and keeping prices low and stable.

The Nov. 7 FOMC statement said, “Labor market conditions have generally eased and the unemployment rate has increased but remains low.” With a low unemployment rate of just 4.1% in October and over 7.4 million unemployed The job market is still on relatively solid footing in September.

The Fed’s statement also acknowledged that inflation remains “somewhat elevated.” While the Fed has a 2% inflation target, headline CPI is at 2.4% year-over-year in September, core CPI is at 3.3%, headline PCE is at 2.1%, and core PCE is at 2.1% 2.7%. Although all four of these key consumer inflation rates are above the Fed’s target year-over-year, they have trended lower.

Looking forward, we expect total CPI, core CPI, total PCE and core PCE to continue to decline year-over-year. However, these slowdowns may take time and we do not expect headline or core CPI to decline to 2% year-over-year until 2025.

The big takeaway is that if inflation continues to cool, there will be further rate cuts.

ForbesOverall PCE inflation is nearing the Fed’s 2% targetFrom Jason Schenker

What do you think of the November 2024 Fed decision?

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