The Federal Reserve is likely to cut interest rates in December, but the timing and extent of the move are uncertain. The November nonfarm payrolls release showed an increase of 227,000 jobs, slightly better than expected, giving the central bank more leeway to reduce rates.
Economists such as Joseph LaVorgna and Chris Rupkey are skeptical about a rate cut, citing easing financial conditions and robust wage gains. Jason Furman, a former White House economist, also expressed caution on inflation, noting that recent average hourly earnings increases suggest an inflation rate of 3.5%.
The Fed’s preferred measure of inflation has ticked up to 2.3% in October, and wage gains continue to be strong. However, the broader economy remains strong, with a 3.3% annualized growth rate for gross domestic product in the fourth quarter.
Fed officials believe that financial conditions are at their loosest since January, but some policymakers, including Cleveland Fed President Beth Hammack, advocate for slowing down the pace of rate cuts. The release next week of separate reports on consumer and producer prices could still dissuade the Fed from a December cut.
The issue of the “neutral” rate, which neither restricts nor boosts growth, is central to how the Fed will conduct policy. Some economists suggest that the level may be higher than in previous economic climates, and that the Fed should enact a small rate cut now and then again in early 2025 before taking a break.
Overall, while the Fed’s decision on a December rate cut is likely, the timing and extent of the move are uncertain, and policymakers will need to carefully consider inflation, wage gains, and financial conditions before making their next move.
Source: https://www.cnbc.com/2024/12/07/the-fed-is-on-course-to-cut-interest-rates-in-december-but-what-happens-next-is-anyones-guess.html