Analyst: The Federal Reserve may hint at pausing rate cuts in early 2025

On December 14, analyst Megan Leonhardt stated that despite the lack of progress in curbing inflation in November, federal funds futures show that there is almost a 100% chance that Federal Reserve policymakers will cut the benchmark interest rate by another 25 basis points. The rationale for cutting rates may depend on Fed officials wanting to align the benchmark rate with current economic conditions, as inflation has significantly fallen from its peak in 2022 and the previously tense labor market is normalizing. However, don't be surprised if next week's rate cut comes with forward guidance from Powell suggesting that the Fed will seek to pause rate cuts at the beginning of the year. The Fed not only wants to control inflation in its final stages but also many fiscal policy outcomes over the next year could change the direction of inflation. In addition, there are indeed some weak spots in the labor market worth careful observation. All these present directional challenges for the Fed over coming months and policymakers might avoid taking action at an astonishing pace.