Fed Faces Dilemma: Balancing Inflation Management and a Slowing Labor Market in December Choice
- The U.S. Federal Reserve is likely to cut rates by 25 basis points in December, marking the third consecutive reduction to a 3.50%-3.75% range. - Internal FOMC divisions and government shutdown-related data gaps complicate the decision, with labor market softness and persistent inflation above 2% key concerns. - Market expectations for a December cut have dropped to 63% as investors weigh labor resilience against inflation risks from tariffs and supply disruptions. - Divergent FOMC views persist, with so
According to a Reuters survey of 84 out of 105 economists, the U.S. Federal Reserve is expected to lower interest rates by 25 basis points in December, a slight increase in consensus compared to last month
The outcome will largely depend on labor market conditions, which have recently shown some weakness. Private data, such as ADP’s latest figures indicating an average of 11,250 jobs lost weekly in late October, have heightened worries about a softening job market
Investor confidence in a December rate cut has declined somewhat, with the likelihood now at 63%, down from 92% a month earlier
The future direction is still unclear. Nearly half of the economists polled anticipate the federal funds rate will fall to between 3.25% and 3.50% by the next quarter, but there is no agreement on where rates will stand by the end of 2026
As the December meeting draws near, investors will be watching closely to see if Powell can bring unity to the FOMC amid differing opinions. Any delays in resolving the government shutdown or unexpected jumps in inflation could further complicate the outlook, but for now, a December rate cut appears to be the most probable outcome
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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