- The Federal Reserve delivered its third straight interest rate cut yesterday, dropping the benchmark rate by 25bp to a range of 4.25%-4.5%. The move was expected however inflation remains a serious headache for officials, with Chairman Jerome Powell admitting that the central banks year end inflation projection has “kind of fallen apart.” Officials have dialled back expectations for rate cuts throughout 2025 as they continue to chase the 2% inflation target which remains illusive and will take more time to reach. Speaking at the press conference which followed the meeting, Powell remains focused on inflation saying, “as we think about further cuts, we’re going to be looking for progress on inflation” adding “we have been moving sideways on 12-month inflation.” Money markets are currently pricing in just 50bp of rate cuts from the Fed next year, roughly half of what was expected just a few months ago. Further fears of inflation coming from fresh tax cuts and tariffs when incoming President Donald Trump comes to office may further influence markets in the coming months. Treasury markets and stocks tumbled after the announcement with the dollar rallying to its highest level in two years pushing EURUSD below recent support to trade as low as 1.0344 before recovering slightly.
- The Bank of England hold their final policy meeting of the year today and seem unlikely to give UK households an early Christmas present in the form of an interest rate cut. ‘Caution’ remains the buzzword for the MPC as stubborn inflation looks set to limit the number of interest rates in 2025. Money markets are currently pricing in just 49bp of cuts next year down from 70bp which were forecast earlier this month.
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