The Federal Reserve's interest rate cut next week is almost a certainty, and the market is focused on the latest economic forecasts

According to the Zhitong Finance APP, investors generally believe that the Federal Reserve will cut interest rates by 25 basis points at the meeting on December 17-18, and will focus more on the new economic forecasts released by policymakers at the same time as they make their decisions.

These forecasts will include the latest views of Federal Reserve officials on the possibility of further rate cuts in 2025 or even 2026. This work must take into account data showing inflation above expectations, a healthy labor market, potential changes in global trade and immigration patterns due to the U.S. election results, and ongoing geopolitical risks.

Faced with such a multitude of assessments, numerous new risks, and various uncertainties, many analysts expect that the policy statement from the Federal Reserve next Wednesday, the post-meeting press conference by Fed Chair Jerome Powell, and the latest forecasts will all convey a hawkish tone—compared to a few months ago, the Federal Reserve may be closer to a temporary rate cut or at least very reluctant to commit to further lowering borrowing costs.

The following may be some of the data that Federal Reserve policymakers will consider:

Inflation Remains Stubborn

Since the last economic forecast released by the Federal Reserve in September or the policy meeting on November 6-7, overall inflation has not shown much improvement. However, some components have changed, leading policymakers to be confident that price pressures are gradually easing, a so-called anti-inflation trend. The rise in housing costs has slowed, and the Personal Consumption Expenditures Price Index (PCE), which the Federal Reserve uses to gauge progress toward its 2% inflation target, is expected to show a slowdown when the November data is released next week. However, this will not be known until two days after the Federal Reserve meeting concludes.

Employment Remains Stable

The labor market remains one of the biggest surprises for the Federal Reserve. Since the Federal Reserve began raising interest rates significantly in March 2022, the unemployment rate has risen slightly but remains at 4.2%, below the long-term average and right at the median level that Federal Reserve officials consider roughly representative of full employment. Unless there are unexpected developments in December, the unemployment rate at the end of the year may be below the 4.4% predicted by policymakers in September.

Meanwhile, job creation has slowed from the frenzy of recent years, leading some policymakers to believe that the labor market is currently operating at a sustainable pace.

However, this resilience is one of the reasons policymakers indicate they wish to remain cautious about future rate cuts, as they are concerned that the current economy is actually close to its potential level. Lowering the policy interest rate, currently set in the range of 4.50%-4.75%, too much could boost demand, expand the economy's capacity to meet that demand, and push up inflation

Wages Offset by Productivity

Another surprise in recent data is that, over time, worker productivity continues to improve, and this improvement is sufficient to slow the pace of wage growth.

As a result, unit labor costs for businesses have been rising at a more moderate pace. Unit labor costs are a key factor in assessing whether tightness in the labor market will lead to price pressures.

Demand Will Not Stop

Another sign of economic resilience is consumer spending, which, aside from recovering from the elevated levels during the COVID-19 pandemic to a trend more akin to pre-pandemic levels, has not shown much sign of cooling.

As long as people have jobs and income, they will spend, which is one of the important conditions that Federal Reserve officials believe will lead to an impending "soft landing" for inflation