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

Federal Reserve cuts interest rates

The Fed lowered the federal funds rate on November 7 by 0.25%, aiming for a range between 4.5% and 4.75%. The 0.25% interest rate cut was expected and is expected to support prices of stocks, industrial commodities and bonds, while also weighing on the dollar.

After the Fed’s statement was released at 2 p.m. ET, Fed Chair Powell faced a barrage of questions during his 2:30 p.m. ET news conference on the Fed’s decision to cut interest rates and when the Fed might consider suspending interest rate cuts. Powell also cleverly dodged a series of political questions during the press conference held just two days after the 2024 US elections.

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

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

ForbesThe Fed just cut 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 latest version is from September 2024 and the next version will be in December 2024.

Although no FOMC forecast was released on November 7, the median FOMC forecast for September 2024 reported 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 would be a further reduction in interest rates of 0.25% this year, followed by a further reduction of 1% in 2025 and a further reduction of 0.5% in 2026.

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

ForbesFed Interest Rate Cuts Come After Weak October 2024 PayrollsBy Jason Schenker

Dual mandate dynamics support more rate cuts

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

THE November 7 FOMC Statement “Labor market conditions have generally improved and the unemployment rate has increased but remains low. » With a low unemployment rate of just 4.1% in October and more than 7.4 million jobs available in September, the job market remains on relatively solid footing.

The Fed’s statement also acknowledged that inflation remains “somewhat elevated.” While the Fed has an inflation target of 2%, total September year-over-year CPI is 2.4%, core CPI is 3.3%, total PCE is 2.1 % and the basic PCE is 2.7%. Although these four key year-over-year consumer inflation rates are above the Fed’s target, they are following the trend.

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

The bottom line is that further interest rate cuts will be expected if inflation continues to cool.

ForbesTotal PCE inflation nears Fed’s 2% targetBy Jason Schenker

What do you think of the Fed’s November 2024 decision?

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