“The Federal Reserve Open Market Committee (FOMC) is widely expected to cut its benchmark short-term rate by 25 basis points,” said Sam Williamson, senior economist at First American. “Markets are pricing in a 99% chance of this cut, but slowing the pace of rate cuts is appropriate given the recent outperformance of the US economy and stalled progress on bringing down inflation.”
The Fed began aggressively raising rates in March 2022 to combat inflation, pushing borrowing costs to their highest levels in 23 years. While inflation has cooled significantly since then, the latest Consumer Price Index (CPI) for November rose 2.7% year-over-year, still above the Fed’s 2% target.
Experts said this persistent inflation, paired with the continued strength of the US economy, is forcing the Fed to adopt a more measured approach.
Greg McBride, chief financial analyst at Bankrate, believes the December cut could be the last for a while.
“The Federal Reserve is expected to cut interest rates for a third time, by one-quarter of a percentage point, bringing the total rate reduction to one full percentage point since September,” McBride said. “But this could be the last rate cut for a few months, especially with progress on the inflation front stalling out and the economy motoring along.”