WASHINGTON — The Federal Reserve is set to make its final policy move of 2024 today, but the guidance accompanying the decision could be more important than the level of the federal funds rate.
For weeks, Federal Open Market Committee members have been toying with whether to lower their benchmark interest rate by a quarter percentage point or hold steady at a target range of 4.5% to 4.75%.
Fed Gov. Christopher Waller said he was
Meanwhile, Fed Gov. Michelle Bowman said she was troubled by stagnating progress on inflation and would prefer to proceed
Despite these mixed messages, market participants remain confident that the FOMC will lower its policy rate today. As of this morning, 98.8% of Fed funds futures traders had priced in a cut, according to CME Group's FedWatch tool.
If the Fed delivers a cut as expected, Powell will likely be asked to explain the committee's view of the job market as well as why it does not see recent price growth readings as a sign of persistent — or even resurgent — inflation.
Blerina Uruci, chief U.S. economist for the investment management firm T. Rowe Price, said a 25 basis point rate reduction has been "fully priced" by market participants and is the likeliest outcome. She added she will look to Powell's post-meeting press conference for an indication of what the Fed will do next.
"I expect that Powell will signal that the pace of cuts will slow next year which would open the door to January being a skip. Risks are that this could turn into an extended pause if the economy remains resilient and the disinflationary process completely stalls, or price pressures accelerate in Q1 2025," Uruci said. "This is not my baseline, but I see it as more likely than the Fed cutting rates sharply next year."
Along with the rate decision and Powell's commentary, the FOMC will also outline its expectations for the coming months and years through its annual summary of economic projections, or SEP. All seven Fed board members and all 12 reserve bank presidents will mark down where they expect various indicators, including interest rates, to be during each of the next three years.
In the last SEP, released in September, participants were roughly split between those expecting rates to fall to between 4.25% and 4.5% and those expecting a range of 4.5% and 4.75%, meaning most FOMC members expected to be where they currently are.
During that September meeting, a majority of participants said they expected the target range to fall below 3.5% next year, with two saying they expect rates below 3% by then. The range and distribution of projections — known as the dot plot, because of how the predictions are presented — during this week's meeting will indicate how the committee's thinking has evolved.
An analyst note from the French bank BNP Paribas predicts that Powell's comments will open the door to a "pause" on rate cuts starting at next month's meeting and a possible lower endpoint for the target range in 2025. It added that the Fed chair will face the additional challenge of outlining this course of action without drawing the ire of President-elect Donald Trump, who has been open about his preference for the Fed to support his economic policy ambitions.
"Beneath the surface of Powell's press conference will be one of the greatest communication challenges the modern Fed has faced, in our view: how to position monetary policy for a new Trump administration without exposing itself to criticism for doing just that," the BNP Paribas note states. "We anticipate the start of a widening gap between words and actions: while Powell will likely comment on recent realized data and shy away from discussion of expected future policy, his actions should line up with management of elevated inflation risk."
