The Federal Reserve is expected to cut borrowing costs on Thursday, in a move that some observers are calling a “hawkish cut.” It will be accompanied by an update on policymakers’ interest rate forecasts and economic projections, covering the first few months of the Trump administration.
The quarter-percentage point cut is expected to lower the U.S. central bank’s benchmark policy rate to a range of 4.25%-4.50%, a full percentage point lower than it was in September when the central bank began easing tight monetary policy to combat a spike in inflation that began in 2021.
However, how far and how fast interest rates will continue to fall next year remains in question, with inflation remaining above the Fed’s 2% target, economic growth faster than expected, and the prospect of Trump’s tariffs, taxes, and immigration policies that could unexpectedly alter the economic landscape after he takes office in January.
In its latest quarterly forecast in September, Fed policymakers expected the benchmark rate to be cut by another full percentage point, to around 3.4% by the end of 2025.
Amid data showing inflation remaining above its 2% target and Trump’s victory in the Nov. 5 presidential election, investors are now seeing the Fed cut its benchmark rate by only half a percentage point next year. They will be watching Fed Chairman Jerome Powell’s projections and comments at a post-meeting news conference to see if policymakers are becoming more cautious about further rate cuts.
The Fed will issue a policy statement and update on its economic outlook at 3 a.m. ET, with Powell scheduled to speak a half-hour later.
The data, including a strong November retail sales report on Tuesday, did little to change the Fed’s view after its last policy meeting that the economy is growing at a “robust” pace, with unemployment low and inflation that, while declining, “remains quite high.”
