The Federal Reserve cut interest rates by 0.25% on November 7. The labor market has softened and annual inflation has declined, leaving the door open for more rate cuts in the future. The Federal Open Market Committee’s September 2024 projections reflected expectations of rate cuts through the end of 2026.

Federal Reserve lowers interest rates

The Fed cut the Fed Funds rate by 0.25% on November 7, targeting a range between 4.5% and 4.75%. Interest rates were expected to be cut by 0.25% and are likely to support stock prices, industrial commodity prices and bond prices, while also weighing on the dollar.

After releasing the Fed’s statement at 2:00 PM ET, Fed Chairman Powell faced a barrage of questions during his 2:30 PM ET press conference about the Fed’s decision to cut rates and when the Fed could consider suspending interest rate cuts. Powell also artfully dodged a series of political questions during the press conference held just two days after the 2024 US election.

Looking ahead to the Fed’s future interest rate policy, Prestige Economics expects a 0.25% rate cut in December 2024, with further rate cuts in 2025 and 2026.

The prospect of further interest rate cuts following a quick and decisive presidential election outcome supports business and consumer confidence, economic activity and financial markets.

ForbesThe Fed just cut rates, and more rate cuts are comingBy means of Jason Schenker

Looking back to look forward

The Federal Open Market Committee’s expectations for future interest rates are released quarterly. The last release was in September 2024 and the next release will be in December 2024.

Although no FOMC forecasts were released on November 7, the average September 2024 FOMC forecasts reflected expectations that the federal funds rate will be 4.4% at the end of 2024, 3.4% at the end of 2025 and 2.9% at the end of 2026 .

These forecasts imply another 0.25% rate cut this year, followed by another 1% rate cut in 2025 and a subsequent 0.5% in 2026.

While these forecasts are often subject to significant change, they clearly point to lower interest rates in the future. Members of the FOMC likely expect to cut rates further as risk factors influence the Fed’s dual mandate shift.

ForbesFed rate cuts come after October 2024 payroll weaknessBy means of Jason Schenker

Dual mandate dynamics support more rate cuts

The Fed has a dual mandate to promote full employment and keep prices low and stable.

The Nov. 7 FOMC statement noted that “labor market conditions have generally eased and the unemployment rate has increased, but remains low.” With a low unemployment rate of only 4.1% in October and more than 7.4 million open jobs in September, the labor market is still on a relatively solid basis.

The Fed’s statement also acknowledged that inflation remains “somewhat high.” Although the Fed has an inflation target of 2%, headline CPI in September is 2.4% annualized, core CPI is 3.3%, headline PCE is 2.1%, and core PCE is 2.7% . While all four of these key annualized consumer inflation rates are above the Fed’s target, they are trending downward.

Looking ahead, we expect total CPI, core CPI, total PCE and core PCE to continue to decline on a year-over-year basis. However, these delays may take some time, and we do not expect headline CPI or core CPI to decline to 2% annually until 2025.

The big advantage is that more interest rate cuts will follow if inflation continues to cool.

ForbesOverall PCE inflation is moving closer to the Fed’s 2% targetBy means of Jason Schenker

What do you think of the November 2024 Fed decision?

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