The Fed cut interest rates in November, and more rate cuts are coming

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

The Federal Reserve lowers interest rates

The Fed cut the federal funds rate on November 7 by 0.25% with a target range of 4.5% to 4.75%. The 0.25% interest rate cut was expected and is likely to support stock prices, industrial commodity prices and bond prices while weighing on the dollar.

After a release of the Fed statement at 2 p.m. ET, Fed Chair Powell faced a barrage of questions at his 9 p.m. press conference. 2:30 PM ET on the Fed’s decision to cut interest rates and when the Fed might consider pausing rate cuts. Powell also artfully dodged a number of policy questions at the news conference, held just two days after the 2024 US election.

Looking ahead to future Fed interest rate policies, Prestige economy expect a rate cut of 0.25% in December 2024 with more rate cuts in 2025 and 2026.

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

ForbesThe Fed has just lowered interest rates, and more rate cuts are comingBy 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 and the next release will be in December 2024.

Although no FOMC forecasts were released on November 7, the median was September 2024 FOMC Forecasts conveyed expectations that the federal funds rate will be 4.4% at the end of 2024, 3.4% at the end of 2025 and 2.9% at the end of 2026.

These forecasts imply that there will be another rate cut of 0.25% this year, followed by further 1% rate cuts in 2025 and then 0.5% in 2026.

Although often subject to significant changes, these forecasts clearly point to lower interest rates in the future. FOMC members likely expect to be able to cut interest rates further as risk factors impact the Fed’s dual mandate shift.

ForbesFed rate cuts come after weak payrolls in October 2024By Jason Schenker

Dual Mandate Dynamics supports multiple rate reductions

The Fed has a dual mandate to promote full employment and keep prices low and stable.

The November 7 FOMC Statement noted, “labor market conditions have generally eased and unemployment has risen but remains low.” With a low unemployment rate of just 4.1% in October and over 7.4 million open jobs in September, the labor market remains on relatively solid footing.

The Fed statement also acknowledged that inflation remains “somewhat elevated.” While the Fed has an inflation target of 2%, September headline CPI is 2.4% year-over-year, core CPI is 3.3%, headline PCE is 2.1%, and core PCE is 2. 7%. Although all four of these key year-over-year consumer inflation rates are above the Fed’s target, they have fallen on trend.

Looking ahead, we expect year-over-year aggregate CPI, core CPI, aggregate PCE and core PCE to decline further. However, these decelerations may take time, and we do not expect headline CPI or core CPI to fall to 2% year-over-year before 2025.

The big thing is that there will be more interest rate cuts if inflation continues to cool.

ForbesHeadline PCE Inflation Moves Closer to Fed’s 2% TargetBy Jason Schenker

What do you think of the November 2024 Fed decision?

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