The Federal Reserve is expected to proceed with interest rate cuts later this month despite a modest increase in inflation in November, according to experts. The Consumer Price Index (CPI) reported an annual inflation rate of 2.7% in November, up from the previous month’s 2.6%. However, the Fed remains committed to returning inflation to its 2% goal.
Chief investment officer Jim Baird notes that the path for 2025 interest rate cuts is less clear, but a course correction by the Fed towards holding rates higher for longer appears increasingly probable. The Fed has already cut interest rates to 4.5% to 4.75%, and while inflation has moderated substantially over the past two years, Chair Jerome Powell remains committed to achieving its 2% goal.
While some experts predict that consumer prices may not start dipping down soon, and inflation remains stubborn, it is likely that the Fed will continue with rate cuts in the near term. Mortgage rates have decreased in sync with the Fed’s interest rate cut, and realtor.com Chief Economist Danielle Hale expects market mortgage rates to decrease to 6.2% by the end of 2025.
The Fed’s decision on interest rate cuts is also influenced by employment data, which showed a rise of 227,000 jobs in November. This could potentially put upward pressure on the Fed’s decision to cut rates. However, car insurance prices have eased, with the annual increase dropping for a seventh straight month.
Despite these factors, it is still unclear how interest rate cuts will happen in 2025. The typical investor has priced in just 3.9% policy rate by the end of 2025, which may allow room for market interest rates to move lower if the Fed’s projection winds up closer to reality.
Source: https://www.foxbusiness.com/personal-finance/november-inflation-increase