Almost 100%! Wall Street firmly believes that the Federal Reserve will definitely cut interest rates next week

Despite the stagnation in the decline of the U.S. November CPI inflation, this may not prevent the Federal Reserve from cutting interest rates next week.

On Thursday, the market widely expected the Federal Reserve to announce a rate cut at next week's FOMC meeting. The federal funds futures market currently indicates that there is almost a 100% chance that Federal Reserve officials will choose to cut rates by another 25 basis points at the FOMC meeting on December 17-18.

It is worth mentioning that this expectation is not based on the latest inflation data, but rather on the overall economic situation.

From July 2023 to September 2024, the Federal Reserve raised interest rates and maintained them at a level of 5.25% to 5.50%. The economic environment at that time was quite different from now; although inflation has not yet reached the Federal Reserve's 2% target, it has significantly retreated from its peak, and the employment situation has stabilized. Federal Reserve officials also tend to favor further rate cuts to normalize policy, avoiding restrictions on economic growth or worsening employment.

At the same time, media analysis reminds us not to be surprised by the forward guidance issued by the Federal Reserve after the rate cut next week. The Federal Reserve may cautiously consider the pace of subsequent rate cuts, and they may hint at pausing rate cuts at the beginning of the year and reducing the number of rate cuts in 2025.

The Federal Reserve will not deviate from the December rate cut path and remains optimistic about the downward trend in inflation

Overnight, the U.S. Bureau of Labor Statistics released data showing that the U.S. November CPI rose 0.3% month-on-month, up from 0.2% in October, the highest level since April of this year. However, the year-on-year growth was 2.7%, in line with expectations. More importantly, core inflation, excluding food and energy, remained stable, with the November core CPI rising 0.3%, consistent with the increase since August.

RSM US economist Tuan Nguyen stated:

The Federal Reserve will not deviate from the path of a December rate cut, which is the basic expectation of the market. Considering that seasonal factors in inflation reports may fade in the coming months, this is a reasonable short-term decision.

Analysts believe there is reason to remain optimistic about inflation returning to a downward trajectory. In November, there was a significant increase in used car prices and hotel prices, but industry data did not indicate that this increase would persist. Additionally, there were positive changes in housing inflation, with rent prices and owners' equivalent rent rising only 0.2% in November, reaching a cyclical low.

RenMac's head of economic research, Neil Dutta, pointed out:

The normalization of housing rent inflation will help overall inflation return to the 2% target, as this area has the largest gap compared to the Federal Reserve's target, with overall housing inflation rising 0.3% month-on-month in November.

Recently, several Federal Reserve officials have pointed out that the U.S. has made significant progress in reducing the overall inflation rate, while the labor market has also returned to normal levels. San Francisco Fed President Mary Daly explained last week that since inflation is no longer as far from the 2% target as it was in the past, and the labor market is tending toward balance, monetary policy should not be as tight as it was in the past two yearsFederal Reserve Governor Waller also stated last week that he is inclined to further cut interest rates at the December FOMC meeting. Although the recent rebound in inflation has raised concerns that price growth may stagnate above the Fed's 2% target, he indicated that he does not want to overreact