U.S. Fed Likely To Lower Rates Once Again

The U.S. Federal Reserve is convening for its last meeting of 2024 today, with key announcements anticipated following the session. It is widely expected that the Federal Reserve will announce a 25 basis points reduction in interest rates.

Inflation Metrics Show Rising Pressures

According to Kalshi, there is currently a 96% likelihood that the Fed will reduce rates by 25bps at the meeting. This would mark the third rate cut of 2024, bringing the total reductions to 100bps. Thus far, the Fed has already implemented two rate cuts this year.

Meanwhile, inflation has been picking up in recent months, further complicating efforts by the Fed to stabilize the economy. At the beginning of the year, the U.S. Consumer Price Index (CPI) stood at 308.417 points. By April, it had increased to 313.55 points. In October, the CPI reached its highest level for the year at 315.66 points, before slightly decreasing to 315.49 points in November.

In January 2024, the U.S. Producer Price Index (PPI) was at 142.683 points. By June, it rose to 144.834 points and has steadily increased since then, reaching a yearly peak of 146.493 points in November. Meanwhile, the U.S. Personal Consumption Expenditure (PCE) Price Index began the year at 122.115 points. It hit a peak of 123.234 points in April, and after a period of steady increases, it reached 124.266 points in October, its highest level for the year.

Challenges For The Labour Market

A significant factor prompting the consideration of rate cuts is the ongoing challenges in the U.S. job market. Although there were early signs of improvement, the job market has recently begun showing signs of weakness.

In fact, the U.S. Initial Jobless Claims (IJC) Index stood at 224K on November 30th. By the first week of December, it had risen to 242K, a level not seen in the previous eight weeks. Finally, the Continuing Jobless Claims (CJC) Index also saw a rise, increasing to 1.89 million by November 30th.