The final cut (for now)?

**The final cut (for now)?**
The Fed is set to wrap up its last policy meeting of the year on Wednesday, with markets essentially convinced that the central bank will lower interest rates for a third time since September.
There may still be drama, however, as investors worry that stubbornly high inflation and volatility from a potential trade war orchestrated by President-elect Donald Trump could force the Fed to go easier on rate-cutting next year.
**The central bank is divided on what to do,** with a growing number of officials taking a more cautious tone in recent weeks. That could signal an emerging belief among policymakers that borrowing costs should remain higher for longer, the kind of debate that created huge friction between Trump and the politically independent Fed in his first term.
Jay Powell, the Fed chair, has sounded more hawkish lately, too. He told Andrew at the DealBook Summit this month that a “stronger” economy meant that “we can afford to be a little more cautious as we try to find neutral.” That refers to the Fed’s target of achieving an interest rate level that neither encourages nor impedes growth.
Advertisement
SKIP ADVERTISEMENT
**Inflation remains a concern.** Recent economic data has shown that the Fed’s efforts to tame price rises have largely stalled. (The release on Friday of the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, should offer more clues.)
That’s adding uncertainty as investors ponder the effects of Trump’s likely economic policies and whether his pledge to lower taxes, crack down on immigration and impose tariffs on trade partners will revive the inflation genie and further muddle the Fed’s rates policy next year.
Even so, consumers are feeling more optimistic about their finances.
**What Wall Street is predicting:** The futures market on Tuesday was pricing in about 80 percent odds of the Fed holding fire on rates at the January meeting.
A number of economists see the central bank cutting its benchmark lending rate three times next year, which Goldman Sachs calculates would put it at around 3.625 percent, or a quarter percentage point percent higher than what the Fed had predicted in September.
**Pay attention to the Fed’s forecast.** In addition to its outlook on cuts, investors will be eyeing how it will manage its financial holdings, José Torres, senior economist at Interactive Brokers, wrote in an investor note on Monday.
**Editors’ Picks**
**2024 Holiday Gift Guide**
**Is It Ever OK to Go Barefoot in Public?**
**The Best Science Fiction and Fantasy of 2024**
SKIP ADVERTISEMENT
Advertisement
SKIP ADVERTISEMENT
He added that “a dovish pitch” by Powell would “likely lead to a continuation of the Santa Claus rally.” Anything short of that could “hamper financial market exuberance.”
Image