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According to a Reuters survey, the majority of economists believe that President-elect Donald Trump’s proposed policies will increase inflation, thus the U.S. Federal Reserve will drop interest rates next month but make lesser cuts in 2025 than anticipated just a month ago.
Over the past few weeks, markets have roughly halved rate cut pricing to about 75 basis points by the end of 2025 because to expectations of a price recovery based on his proposed policies, which include increased tariffs and tax reductions.
The economy’s unwavering strength, obstinate inflation, and stock markets that are on the verge of hitting all-time highs have turned into obstacles to rash rate reduction. According to Fed Chair Jerome Powell, “the economy is not sending any signals that we need to be in a hurry to lower rates.” Powell made this statement last week.
However, in a Reuters poll conducted from November 12–20, nearly 90% of economists (94 out of 106) predicted a 25 basis point cut in December, bringing the fed funds rate to 4.25%–4.50%. Twelve respondents anticipated no change, compared to only three in the survey conducted last month.
However, market pricing indicated that the likelihood of a December cut is currently less than 60%. Few people were wagering against such a move until lately.
“We continue to demand a December decrease. We anticipate how the data will act. Stephen Juneau, a U.S. economist at Bank of America, stated, “But you can see why markets kind of pricing another sort of coin flip…the economy is still very strong, and inflation is still running above target.”
