The Federal Reserve is likely to slow its interest rate cuts next year as inflation pressures remain elevated, according to economists and Fed officials. At this week’s meeting, policymakers are expected to reduce the benchmark rate by a quarter-point to around 4.3%, which would be below the four-decade high reached in July 2023.
The decision comes despite inflation having dropped from its peak of 9.1% in mid-2022, but still remaining above the Fed’s 2% target. Economists expect the Fed to signal a shift to a more gradual approach to rate cuts in 2025, with some predicting just two or three cuts next year.
The economy has fared better than expected, but inflation pressures have proven persistent, and the upcoming presidential election has added uncertainty. President-elect Donald Trump’s proposed policies, including higher taxes on imports and mass deportations of people living illegally in the US, threaten to accelerate inflation.
Fed officials, led by Chair Jerome Powell, are aiming for a neutral interest rate level that neither stimulates nor restricts growth. However, there is disagreement among policymakers about how high this rate should be, with some economists pegging it at 3-3.5%. If inflation becomes stuck above the target level, rates may remain higher.
The Fed’s decision to slow rate cuts comes despite a recent boost in consumer demand, indicated by November retail sales figures expected to show healthy demand on Tuesday. Economists like David Beckworth argue that there is no sign of weakness emerging overall and justify resisting rate cuts.
Source: https://apnews.com/article/federal-reserve-inflation-rates-trump-economy-prices-4abfd4fad49db65cad4a2b5607d9e952