Fed set to cut rates for third and final time this year

At the December policy meeting last year, Federal Reserve officials penciled in three rate cuts for this year, according to median projections.

Their prediction is likely to be spot on, with the central bank widely expected to cut rates Wednesday for the third and final time this year.

But by June’s meeting this year, Fed officials forecast just one cut for the year after inflation unexpectedly heated up. Then by September’s meeting, when the central bank began cutting rates, officials returned to their prior prediction for a total of three cuts for the year.

The Fed is set to release new projections at 2 p.m. ET today detailing how many cuts officials anticipate next year. At September’s meeting, the median forecast was for four cuts in 2025 — but there’s a sizable chance officials will now forecast fewer cuts in the next year with inflation remaining sticky and the labor market still in solid shape.

Meanwhile, traders were convinced around this time last year that the Fed would deliver six rate cuts in 2024, beginning with the March meeting, according to historical fed funds futures data.

The majority of traders believe that if the Fed cuts rates Wednesday by a quarter point, there will be only one or two cuts in 2025.

The Federal Reserve is widely expected to lower interest rates by a quarter point this meeting. But not everyone thinks the central bank necessarily needs to do so.

Cleveland Fed President Beth Hammack, who will be casting a vote at this month’s meeting, said earlier in the month that, “We are at or near the point where it makes sense to slow the pace of rate reductions.” She said she believes the central bank may have lowered rates enough already such that they’ve approached what’s referred to as the “neutral rate,” which is when rates are at an optimal level to promote sustainable economic growth without sparking inflation.

Similarly, Fed Chair Jerome Powell said at a New York conference earlier this month, “We can afford to be a little more cautious.”

“I feel very good about where the economy is and where monetary policy is,” he added.

Former Boston Federal Reserve President Eric Rosengren said if he were still at the central bank, he’d oppose a rate cut at this meeting partly because policies President-elect Donald Trump campaigned on risk causing inflation to heat up again.

“Lower taxes, immigration and tariffs (are) likely all to be inflationary,” he said in an interview on CNBC this week. “We don’t know the magnitude of those changes. Policy hasn’t been really enunciated very clearly yet, but the direction is certainly to make it more difficult to reach the (Fed’s) 2% inflation target.”

Ed Yardeni, president of Yardeni Research, said he wishes the Fed wouldn’t cut rates this week. He said the central bank is likely to because they view the current level of interest rates as “too restrictive” in terms of dampening the economic outlook. However “that just doesn’t jive with what the markets are saying,” he said in a CNBC interview this week.

“They should see that the stock market is at an all-time high, gold is at an all-time high, bitcoin is at an all-time high. And then, of course, the economic data is extremely strong,” Yardeni said.

Herschel Wilson began stockpiling nonperishable food for his pets and his family of five as soon as President-elect Donald Trump was named the Republican nominee in August. Even if these goods don't get more expensive once Trump is back in the White House, he says he'll eventually need to buy them anyway so they won't go to waste.

The tariffs President-elect Donald Trump has floated have the potential to significantly increase the prices that consumers pay on nearly everything that isn’t made entirely in the US.

That’s pushing some people to stockpile goods, from toilet paper to pet food, in the belief that these items will cost a lot more if Trump follows through with the tariff threats.

Herschel Wilson told CNN he started building up a small stockpile of essential goods for his three pets and family of five based in Tacoma, Washington, in August, after Donald Trump had been named the Republican presidential nominee.

Once Trump won the election, “that changed everything again, and I started to stockpile pretty much everything,” Wilson said.

That includes canned goods, bottled water and, yes, lots and lots of rolls of toilet paper. So far, he estimates he’s spent $300 on stockpiling goods since the election. Going forward, he said he plans to spend $100 extra each month on top of regular grocery spending.

Companies are loading up, too. Stanley Black & Decker CFO Patrick Hallinan said at the company’s investor day last month that it is investing in building up higher inventory levels “for a number of reasons, not the least of which is tariffs.”

Read more here.

Trader Michael Milano works on the floor of the New York Stock Exchange, Wednesday, Dec. 18, 2024.

US stocks rose in anticipation of the Federal Reserve’s rate decision, set to be announced at 2 p.m. ET.

The S&P 500 rose 0.29% to hit 6,068 and the tech-heavy Nasdaq rose 0.22% to hit 20,153.

The Dow, which is trying to break a nine-day losing streak, gained 224 points, rising 0.52%.

If Dow ends the day lower, it will be the 10th straight losing session — the longest such streak since the Dow fell for 11 sessions in a row between September 20 and October 4, 1974.

The Dow’s bid to rise out of its slump is picking up pace as the Fed’s rate decision looms.

UnitedHealth stock, which contributed to the Dow’s slide, is up 3.26%.

Nvidia, which joined the Dow in November, is up 3.63%, reversing losses it suffered over the past week. The chipmaker is up around 180% this year but had slid in recent days, contributing to the Dow’s losing streak.

Investors largely expect that the Fed will cut rates by a quarter point, continuing the rate-cutting cycle it began in September.

While investors are keen to hear the rate decision, they will likely be most focused on the Fed’s expectations for the economy next year, detailed in the quarterly Summary of Economic Projections.

The report includes a forecast of rate cuts for next year, known as the Fed’s “dot plot.”

Jay Hatfield, chief executive of Capital Infrastructure Advisors, told CNN “all eyes” will be on the dot plot to get a sense of how the Fed is thinking about the future.

The US dollar slightly gained while Treasury yields were largely unchanged.

A container ship sits docked at the Port of Oakland, California, on December 9. U.S. President-elect Donald Trump is threatening new tariffs on multiple countries as his second term approaches, after making tariffs a signature of his 2024 Presidential campaign.

Just over a month from now, President-elect Donald Trump will have the power to levy tariffs on other nations at the flick of a pen. And once inaugurated on January 20, he has pledged to immediately impose a 25% tariff on Mexican and Canadian imports and increase tariffs on Chinese goods by an additional 10%.

On the campaign trail, he also promised to levy a 10% to 20% tax on all imports and increase tariffs on Chinese goods by at least 60%.

There are some doubts as to whether Trump will follow through with these plans and, instead, use them as a means to negotiate with other nations. However, if these significant, broad-based tariffs go into effect, it could send the US economy back to one of the most painful periods that took over a decade to resolve: stagflation — something the nation’s economy hasn’t experienced in over half a century.

Read more here.

Federal Reserve Chairman Jerome Powell during a news conference following the September meeting of the Federal Open Market Committee at the William McChesney Martin Jr. Federal Reserve Board Building in Washington, DC. The Federal Reserve announced that day that they would cut the central bank’s benchmark interest rate by 50 basis points to a new range of 4.75%-5%.

If Federal Reserve officials published an equivalent of a Spotify Unwrapped detailing how they spent their year, it would probably start off with something along the lines of, “Consistency is key.” That’s because they kept interest rates at a 23-year high for the first nine months of this year as officials looked for more confirmation that inflation was continuing down the path toward its 2% target.

“Here’s where things started to get real spicy” would be the message displayed as the Fed’s “Unwrapped” jumped to September. At that month’s meeting, the Fed cut rates for the first time since the pandemic. And it wasn’t just any ol’ cut. Rather, they cut by half a point, which came as a surprise to many economists (and reporters), given the central bank usually makes interest rate moves in quarter-point increments.

But not all 12 Fed officials who cast a vote on the interest rate decision were in agreement. Fed Governor Michelle Bowman dissented, favoring a quarter-point cut instead over fears that the larger cut her colleagues opted for could stoke higher inflation. That was the first dissent from a Fed governor since 2005.

By November, the Fed’s “Unwrapped” would flash a message like, “A Touch of Grey for Jay.” At that meeting, the Fed went back to cutting rates by the traditional quarter of a point. But at the post-meeting press conference, Fed Chair Jerome Powell, who just so happens to love the Grateful Dead, reminded us just how long he’s been at the helm of the Fed — nearly six years. And right on the heels of President-elect Donald Trump’s victory, he was asked by a reporter if he’d resign if asked to, given Trump previously threatened to fire him.

Powell didn’t miss a beat.

“No,” he replied curtly, without elaborating on that question.

Another reporter subsequently asked if a president could fire or demote him.

“Not permitted under the law,” Powell fired back.

European Central Bank President Christine Lagarde addresses the media following the Governing Council's monetary policy meeting at the ECB headquarters in Frankfurt, Germany, on December 12.

After cutting interest rates last week for the fourth time this year, European Central Bank President Christine Lagarde made it abundantly clear the central bank has no plans to stop any time soon.

Don’t expect the same clarity from Federal Reserve Chair Jerome Powell when he addresses reporters at his 2:30 p.m. ET press conference.

“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said earlier this week. Inflation in the eurozone rose to 2.3% last month from 2% in October. But the ECB said in its policy statement last week, “The disinflation process is well on track.” In other words, ECB officials are expecting inflation to get back to its 2% target.

Meanwhile, even though the Fed’s preferred inflation gauge also rose to 2.3% in October from 2.1% in September, Fed officials are much less optimistic sounding about inflation cooling further. But that’s not the only reason giving them pause about cutting rates further.

“The US economy is in very good shape, and there’s no reason for that not to continue,” Powell said earlier this month. “The good news is that we can afford to be a little more cautious” about decisions on rate moves, he said.

By contrast, the ECB’s latest policy statement said, “Staff now expect a slower economic recovery than in the September projections.”

A customer shops at a grocery store in Wheeling, Illinois, on December 11.

Inflation heated back up again in November, with consumer prices up 2.7% for the 12 months ended in November, the highest annual rate since July, according to data from the Consumer Price Index released last week.

On a monthly basis, prices rose by 0.3% after rising 0.2% for the prior four months.

New data from the Federal Reserve’s favored inflation gauge is set to be released Friday, but in October it moved in the wrong direction: The Personal Consumption Expenditures price index rose 2.3% in October from the year before, accelerating from the 2.1% pace notched in September, according to Commerce Department data.

On a monthly basis, prices rose 0.2%, matching the gain seen in September.

Inflation within the services sector drove much of the monthly increase, as those prices rose 0.4% from September, while goods prices ticked up by 0.1%. Food and gas prices, two of the biggest touchpoints for consumers, held relatively stable.

“The big picture is inflation is still a risk; that hasn’t changed,” Elizabeth Renter, senior economist at NerdWallet, told CNN in an interview.

Construction workers work on the roof of a house being built in Alhambra, California on September 23.

The US housing market continues to navigate an affordability issue, caused in part by historically low inventory and complicated by rising costs — notably high mortgage and interest rates.

New home building activity fell to a four-month low in November, spurred by a drop-off in new multi-family construction, according to Census data released Wednesday.

Housing starts dipped by 1.8% from October to a seasonally adjusted annual rate of 1.289 million, landing 14.6% below what was seen last year and considerably below economists’ expectations for a 2% increase and rate of 1.35 million, according to FactSet.

A 6.4% increase in single-family home starts — driven by a surge in activity in the hurricane-battered South — was more than offset by a 24.1% drop in multi-family projects with five or more units, Census data shows.

“This year started with high hopes for the housing market but ended up being rather challenging. Mortgage rates were anticipated to fall significantly in 2024,” Bank of America economists wrote in a note to clients Wednesday.

“But, despite some progress, the market hasn’t noticeably turned favorable. Next year, the housing market should improve mildly again. But mortgage rates will likely remain elevated, and inventories will probably stay at historically low levels,” they wrote.

US stocks opened mixed on Wednesday as the Dow gained while the S&P 500 and tech-heavy Nasdaq fell.

The Dow opened higher and rose over 70 points during the start of trading. The blue-chip index is looking to snap a nine-day losing streak, its longest since 1978.

The S&P 500 and the Nasdaq both opened lower on Wednesday, falling 0.1% and 0.25%, respectively.

Investors are focused on the upcoming Federal Reserve rate decision, set to be announced at 2 p.m. ET. Markets have been hot this year, with the S&P 500, Dow and Nasdaq all up more than 15% since January.

The US dollar and Treasury yields were largely unchanged.

Bitcoin hovered just under $105,000 and is down 3% in the past 24 hours after reaching a record high above $107,000 on Monday.

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Expert predicts where credit card rates will be a year from now

01:53 - Source: CNN

The Federal Reserve started cutting interest rates in September of 2024. Since then, the average credit card interest rate has barely come down. CNN’s Vanessa Yurkevich asks Bankrate’s Ted Rossman when credit card rates might move lower and what people with credit card debt should do.

While the Federal Reserve cut interest rates back to back for the last two meetings and is widely expected to announce the same move Wednesday, it doesn’t mean that will continue through 2025.

With inflation edging up a bit recently and the Fed’s 2% inflation goal yet to be achieved and the labor market in better shape than most officials forecast at September’s monetary policy meeting, some officials are warning that further rate cuts after this month’s meeting could be a way away.

“I would prefer that we proceed cautiously and gradually in lowering the policy rate, as inflation remains elevated,” Fed Governor Michelle Bowman said at a conference earlier this month.

Fed Governor Christopher Waller also expressed concerns that “progress on inflation may be stalling,” he said in remarks he delivered earlier this month as well. “At present I lean toward supporting a cut to the policy rate at our December meeting,” he added, though.

A view of the New York Stock Exchange on Wall Street November 13.

US stock futures rose Wednesday in anticipation of the Federal Reserve’s decision on rates, set to be announced at 2 p.m. ET.

Futures on the S&P 500 were up around 0.29%, while Dow futures were up around 0.37% and Nasdaq futures gained by 0.21%.

Markets slid lower Tuesday as the Dow continued a nine-day losing streak, its longest since 1978. The blue-chip index fell 267 points in one day, or 0.61%, continuing a slide largely caused by UnitedHealth stock falling.

The S&P 500 and Nasdaq also both fell Tuesday, with the S&P sliding by 0.39% and the tech-heavy index closing 0.32% lower.

Tuesday’s market slide was a blip compared to the past year’s gains. US stocks have been on a tear since President-elect Donald Trump’s victory in the US presidential election.

The Nasdaq crossed 20,000 for the first time last week and hit a record high on Monday before sliding lower on Tuesday. The Nasdaq is up around 35% this year.

The S&P 500 is up over 28% this year, crossing 6,000 for the first time on November 8. And while the Dow is on a recent losing streak, the blue-chip index is up over 17% this year.

The US dollar was largely unchanged, and Treasury yields slightly gained.

Bitcoin fell to just under $105,000, after reaching a record high above $107,000 on Monday.

The Federal Reserve’s decision on rates is the focus for Wall Street today. Investors will also be looking to the Fed’s summary of economic projections, released quarterly, which will detail their expectations for rate cuts next year.

Federal Reserve Board Federal Reserve Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting in Washington on November 7 in Washington, DC.

The Federal Reserve is expected to cut its benchmark interest rate for the third time this year — but this could be the last rate cut we see for months.

The US economy remains resilient, with the job market holding steady and economic growth forging ahead. But inflation’s progress to the Fed’s 2% target seems to have stalled in recent months.

Put together, economic figures show the Fed doesn’t need to be in any rush to lower borrowing costs after this week — as Fed Chair Jerome Powell noted recently.

“We can afford to be a little more cautious,” Powell said in New York earlier this month. “I feel very good about where the economy is and where monetary policy is.”

The Fed began to cut rates in September, starting with a bold half-point cut. Powell said the move reflected the Fed’s commitment to preserving the labor market’s health, appeasing some investors who feared unemployment would surge.

That turned out to not be the case; both the economy and job market remain on solid footing, which Powell noted in his New York speech.

Still, Wall Street is fully expecting the Fed to follow through with another quarter-point rate cut this week.

“Fed officials are in a really awkward spot with this rate cut,” Karl Schamotta, chief market strategist at Corpay, told CNN.

President-elect Donald Trump has proposed policies that could affect the US economy and potentially wreck the Federal Reserve’s hard-won battle against inflation.

The potentially massive tariffs that Trump has floated for goods coming from Mexico, Canada and China are widely expected to eventually push up costs, which could keep the Fed from cutting rates — or even lead to a rate hike instead.

But there are still many knowns, such as which specific goods will be tariffed and the duration of any new duties. Fed officials will eventually factor in to their economic models any expected changes in trade policies once they are fully fleshed out and set it motion.

Already, inflation data has showed limited progress in recent months.

The closely watched Consumer Price Index rose 2.7% in the year ending in November, the highest annual rate since July.

The Fed’s preferred inflation measure — the Personal Consumption Expenditures price index — is due Friday and could similarly show stubborn price pressures.

A person walks on Wall St. near the New York Stock Exchange in New York's Financial District on December 4.

The Dow headed into Wednesday down for its ninth straight day, the worst losing streak since 1978, when Jimmy Carter was president.

Reaction to the Federal Reserve announcement will be key: The Dow hasn’t had a losing streak of 10 days or more in 50 years — not since an 11-day slump in 1974, according to FactSet data.

The current losing streak began right after the blue-chip index closed at a new record high of 45,000.

Shares of United Health have been the biggest drag on the index, losing around 20% of their value this month.

Market focus now shifts to the Fed’s announcement on rate cuts and, in particular, any signal on what to expect from central bank officials in 2025.