Whether the Federal Reserve will cut interest rates in December is still in a state of uncertainty
According to a report by Hong Kong's Wind Information, recently, Federal Reserve official Neel Kashkari stated that a rate cut in December is a reasonable consideration. According to CME's "FedWatch" data on November 26, the probability of the Federal Reserve maintaining the current interest rate until December is 44.1%, while the probability of a cumulative rate cut of 25 basis points is 55.9%. Kashkari is the President and CEO of the Federal Reserve Bank of Minneapolis. Expectations for a rate cut have weakened; a survey conducted from November 12 to 20 showed that nearly 90% of economists expected the Federal Reserve to cut rates by 25 basis points in December, but there were also 12 economists who expected rates to remain unchanged, and market pricing now shows that the likelihood of a rate cut in December is less than 60%. Although progress in reducing inflation has slowed, Kashkari remains somewhat confident that inflation will continue to decline slowly, and the labor market remains strong. In the context of inflation gradually approaching the Federal Reserve's 2% target while the labor market remains stable, a moderate rate cut would help further consolidate economic growth without triggering a significant risk of inflation rebound. Kashkari believes that the constraints of policy on the economy may not be as strict as previously thought, which means there is some room to further stimulate the economy through rate cuts without causing the economy to overheat or inflation to spiral out of control. Uncertainties affecting the December rate cut decision have recently shown some resilience in economic data, such as relatively stable performance in the consumer market, which has led the market to question the necessity and urgency of a rate cut, resulting in weakened expectations for the magnitude of future rate cuts
According to a report from Hong Kong's Wind Information, recently, Federal Reserve President Neel Kashkari stated that a rate cut in December is a reasonable consideration. According to CME's "FedWatch" data on November 26, the probability of the Federal Reserve maintaining the current interest rate in December is 44.1%, while the probability of a cumulative rate cut of 25 basis points is 55.9%. Kashkari is the President and CEO of the Minneapolis Federal Reserve.
Weakening Rate Cut Expectations
A survey conducted from November 12 to 20 showed that nearly 90% of economists expect the Federal Reserve to cut rates by 25 basis points in December, but 12 economists expect rates to remain unchanged, and market pricing now shows that the likelihood of a rate cut in December is less than 60%.
Although progress in reducing inflation has slowed, Kashkari remains somewhat confident that inflation will continue to decline slowly, and the labor market remains strong. With inflation gradually approaching the Federal Reserve's 2% target and the labor market remaining stable, a moderate rate cut could help further consolidate economic growth without triggering a significant risk of inflation rebound.
Kashkari believes that the constraints of policy on the economy may not be as strict as previously thought, which means there is some room to further stimulate the economy through rate cuts without causing overheating or uncontrolled inflation.
Uncertain Factors Affecting December Rate Cut Decision
Recent economic data has shown some resilience, with areas such as the consumer market performing relatively stable, leading to some doubts in the market about the necessity and urgency of a rate cut, thus weakening expectations for the magnitude of future rate cuts.
Kashkari clearly pointed out that if inflation unexpectedly rises between now and December, the Federal Reserve may pause rate cuts. Upcoming inflation data will be a key factor, such as the Consumer Price Index for October released by the U.S. Department of Labor; if the data exceeds expectations, it may change rate cut expectations.
Potential to Further Boost Stock Market
If a rate cut occurs in December, it could further boost the stock market, as lower interest rates would reduce corporate financing costs and improve profit expectations, attracting more funds into the stock market. Additionally, the bond market would also be affected, with bond prices likely to rise and yields to fall. Furthermore, a rate cut could lead to a weaker dollar, impacting the currency market and subsequently affecting international trade and the profitability of multinational companies.
In terms of the real economy, a rate cut helps lower borrowing costs for businesses and individuals, stimulating investment and consumption, thereby promoting growth in the real economy. This is particularly true for interest-sensitive sectors such as real estate and automobiles, where a rate cut may have a more pronounced stimulating effect, driving the development of related industries and further boosting employment and economic growth.
Source: wind