December FOMC Interest Rate Decision Meeting

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December FOMC Interest Rate Meeting

At 3:00 AM Beijing time on December 11, the Federal Open Market Committee (FOMC) will release its interest rate decision and Summary of Economic Projections.Following this, Federal Reserve Chair Jerome Powell will hold a press conference on monetary policy at 3:30 AM.

Currently, market expectations for an interest rate cut have become highly concentrated.The latest data from CME Group's FedWatch tool indicates an 88.4% probability of a 25-basis-point interest rate cut in December, with the interest rate range expected to be lowered from 3.75%-4% to 3.5%-3.75%. The likelihood of maintaining the current interest rate level stands at merely 11.6%.A Reuters survey also indicates that 108 economists have reached a strong consensus, predicting a 25-basis-point rate cut at this meeting. Additionally, Kevin Hassett, Director of the White House National Economic Council and a leading candidate for the next Federal Reserve Chair, previously suggested that the Federal Reserve might cut rates by 25 basis points this time.

After cutting rates by 25 basis points in October, Powell warned about the risk of inflation rebounding and emphasized that a December rate cut was "far from certain"—since March 2021, inflation has consistently remained above the Federal Reserve’s 2% target.However, recent weak labor market data and signs of slowing inflation reflected in PCE figures continue to reinforce expectations for rate cuts.Meanwhile, last week’s report showing U.S. initial jobless claims hitting their lowest level in over three years alleviated concerns about a rapid deterioration in the labor market but complicated the Federal Reserve’s policy assessment due to conflicting data.

Additionally, numerous external factors have further increased the difficulty of decision-making:Fiscal concerns driven by large-scale tax cuts and spending bills, tariff uncertainties, worries about the Fed’s independence, and a 43-day government shutdown that disrupted the release of key economic data have all heightened uncertainty around the policy path.

Notably, internal divisions within the FOMC stand in stark contrast to market consensus.The minutes of the October meeting released last Thursday showed a significant divergence in stance among committee members: some members favored maintaining the current interest rate level, while others explicitly opposed the rate cut decision made at that time.

Can the divisions within the Fed be reconciled at this interest rate meeting? Will the 25 basis point rate cut be implemented as scheduled? How will Powell interpret the economic situation and guide market expectations?

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