FOMC Likely to Cut Rates by 25bps; Will Beneficiaries Continue to Ride Tailwinds?

The Federal Reserve is set to release its decision from the December FOMC meeting at 2 p.m. Eastern Time on Wednesday, followed by a press conference with Chair Jerome Powell at 2:30 p.m. The announcement is expected to significantly impact markets.

A 25 basis point rate cut is anticipated, marking the third reduction this year and bringing the total cuts to 100 basis points for 2024. The FedWatch Tool indicates a 97% chance of this cut, and a Bloomberg survey shows 89 out of 97 analysts predict a December cut to a range of 4.25% to 4.5%.

The meeting's focus is on the future trajectory of rate cuts, with considerations on inflation, labor market conditions, Trump's policies, and geopolitical risks.

Jon Faust, former senior adviser to Fed Chair Jerome Powell from 2018 until early this year, noted officials' comments on the trajectory of the fed-funds rate are expected to carry more weight than their specific decision regarding the December meeting.

Many analysts anticipate that the Federal Reserve's policy statement and Fed Chair Jerome Powell's post-meeting press conference will convey a hawkish message.

Goldman Sachs predicts that the Fed may signal a slower pace of rate cuts in 2025 this week, and due to concerns over persistent inflation and a robust labor market, a rate cut in January is unlikely. Economists surveyed by the Financial Times suggest that the Fed will adopt a more cautious stance on rate cuts due to worries that policies from the Trump administration could spur inflation.

Nick Timiraos, chief economics correspondent for The Wall Street Journal, reported that labor market volatility has eased and inflation has slightly picked up since September. He wrote, "One option this week would be to cut by a quarter point, then use new economic projections to strongly hint that the central bank is ready to go more slowly on the reductions."