Federal Reserve Expected to Cut Interest Rates Again
The Federal Reserve is expected to cut interest rates for the third time this year, despite growing concerns among policymakers that inflation remains too high. The decision is expected to be made this week, with a quarter-point cut predicted by many economists.
Background
The Fed delivered a second straight reduction in October, driven by the summer’s sudden deterioration in the US labor market. However, this was followed by an outburst of hawkish concern from some officials, signaling hesitancy or unwillingness to support a third move in December. The growing division among policymakers has been exacerbated by the lack of fresh economic data due to a government shutdown that spanned much of October and November.
Market Expectations
Investors initially signaled doubt over the prospect of another cut, but the market took a signal from New York Fed President John Williams, who said he saw room for a reduction in the "near term." As a result, the market now assigns more than a 90% chance to a move next week. Economists polled by Bloomberg expect the Fed to take a break before two more reductions in 2026, in March and September.
Global Economic Outlook
The week will also see a series of central bank decisions from around the world, including the Bank of Canada, the Reserve Bank of Australia, and the Swiss National Bank. The Bank of Canada is expected to keep its rate steady at 2.25%, while the Reserve Bank of Australia is seen holding its cash rate steady at 3.6%. The Swiss National Bank will draw the spotlight among a series of monetary decisions in the region on Thursday.
Economic Data
A range of economic data will be released this week, including inflation numbers from China, India, and Brazil. China’s inflation is expected to tick up to 0.7%, the fastest advance since February 2024. India’s consumer price gains are estimated to have accelerated to 0.75% in November, still well below the Reserve Bank’s 2%-6% target range. Brazil’s headline reading for last month is very likely to have slowed for a second month, and very possibly below the 4.5% top of policymakers’ tolerance range.
Central Bank Decisions
The Reserve Bank of Australia is seen holding its cash rate steady at 3.6% on Tuesday, extending a pause after three cuts earlier this year. The Swiss National Bank will keep its rate at zero, but may acknowledge a weaker price outlook after every inflation reading since the last quarterly decision turned out weaker than expected. The central bank of Turkey may cut borrowing costs by as much as 150 basis points in its own final decision of 2025.
Conclusion
In conclusion, the Federal Reserve is expected to cut interest rates for the third time this year, despite growing concerns among policymakers that inflation remains too high. The decision will be closely watched by investors and economists, who will be looking for signs of the Fed’s future policy direction. The week will also see a range of central bank decisions and economic data releases from around the world, which will provide further insight into the global economic outlook.
