US Fed policymakers are widely expected to cut rates today, their third such move since September.
Traders this morning were penciling in 88 percent odds of a quarter-point cut, which would bring the central bank’s benchmark lending rate to a range of 3.5 percent to 3.75 percent. That said, expect dissenting votes.
Beyond that, little about the meeting appears straightforward — but its consequences are likely to reverberate throughout the global economy.
Market watchers are divided on what comes next.
Economists at Goldman Sachs see the Fed lowering rates once next year; those at Citi forecast two cuts in the first quarter.
Still, many investors appear to expect fewer reductions next year, as suggested by the yield on the 10-year Treasury note — a closely watched rate that tends to underpin mortgage and credit card rates — which has reached a three-month high.
This split-screen view will weigh on the Fed’s outlook, set to be released today. In September, the last time the central bank gave such guidance, officials foresaw the benchmark rate at the end of next year hovering at a range of 3.25 to 3.5 percent. That would suggest just one quarter-point cut next year.
Fed officials are in a bind. They have less visibility than usual because the government shutdown led to key inflation and labor market data being delayed or scrapped. Data released by the New York Fed on Monday showed that consumers were downbeat about their finances, even as President Trump rejects suggestions that the country is experiencing an affordability crunch.“Our prices are coming down tremendously,” the president said yesterday at an event in Pennsylvania. “Inflation is stopped,” he added. (Official government data tells a different story.)
Trump will loom over today’s meeting. The president continues to push for lower rates, as does Kevin Hassett, a top White House economic adviser who is viewed as a front-runner to replace Jay Powell as Fed chair. There is “plenty of room” for further cuts next year, Hassett told The Wall Street Journal.But Hassett added he would not be swayed by pressure from Trump were he to lead the central bank.
Succession drama is in the air, too. Trump will soon begin his last round of interviews with finalists for the central bank’s chair, including Hassett and Kevin Warsh, a former Fed governor, according to The Financial Times.
There’s yet another wrinkle to consider: Would Powell consider staying on as a Fed governor through January 2028, depriving Trump of the chance to install another loyalist to the bank’s rate-setting committee anytime soon?
The New York Times