There Federal Reserve is preparing to announce its decisions on tomorrow interest rateswith a somewhat more “hawkish”which is discounted by bankers’ greater optimism about the economy and the outcome of the Presidential elections.
So what to expect from these meetings? And how to read the graphs relating to expectations? Expectations already include a 25-point rate cut at the December meeting. The prospects for 2025 are more uncertain, even if the majority of observers have scaled back the pace and extent of the cuts that will be made next year.
Tomorrow’s decisions
The FOMC meeting – Federal Open Market Committee will start this evening and end tomorrow with the announcement of monetary policy decisions. The vast majority of observers practically take this for granted rate cut by 25 basis pointsand, which would raise the Fed Funds rate at 4.25-4.50%.
Futures FedWatchlisted on the CME, report a reduction of a quarter of a point with a very minimal margin of error: 95.4% discounts a reduction of a quarter of a point and only a small minority of 4.6% indicates an unchanged policy. Given that a cut is practically certain at this meeting, what are the expectations for 2025?
Quarterly forecasts
On the occasion of this meeting the FOMC quarterly forecastswhich appear in a table that reflects expectations about future interest rates, GDP growth, inflation and the unemployment rate. Interest rate projections also appear in a dot chart representation, known as dot plotwhich summarizes the forecasts of the various FOMC members on future interest rates.
In the detection of Septemberthe dot plots indicated that the majority of bankers he expected a final rate on Fed Fund at 3.4% at the end of 2025 and 2.9% at the end of 2026. However, as economic forecasts improve, interest rate expectations may also have changed and in particular a slowdown is expected of the pace of adjustment to the neutral rate and therefore fewer cuts in 2025.
FedWatch always indicates for January a very high probability of a break (79.9% see a rate stuck at 4.25-4.50%), while in March there is a greater balance of expectations, with 49.4% expecting a reduction of another 25 points and 40 .3% which leans towards an unchanged rate.
Analysts’ expectations
For the analyst Michael KrautzbergerGlobal CIO Fixed Income by Allianz Global Investors,” the Fed will enforce greater caution in bringing monetary policy closer to a neutral level, likely avoiding a further cut in January while it evaluates incoming data. However, market pricing has changed to reflect a less accommodative outlook for Fed policy, with the Fed funds rate now expected slightly below 4% in June 2025“.
Second Philip DiodovichSenior Market Strategist at IG Italy“a change of attitude on the part of FOMC members in the rate reduction process” and a “hawkish” cut are expected as it will precede a period of rate stability. “In our opinion, the president of the FED, Jerome Powell, will use economic projections to anticipate a future possible pause in February and greater caution to cut the cost of money again in view of the next economic policies of the new president Donald Trump who will take office in Washington on January 20th”, says the expert, adding “we believe that the dot-plot graph can highlight a less dovish approach by central bankers with a median of FOMC members who can move alone 3 rate cuts in 2025 (range 3.50%-3.75%). In the last dotplot graph from September there were 6 members who expected 4 cuts in 2025, another 6 members expected 5 and two bankers estimated 6″.
