The Federal Reserve’s final meeting of the year takes center stage alongside a slew of economic data releases this week.
The Fed will likely signal a slower pace of rate cuts in 2025, driven by persistent inflationary pressures and robust economic growth, analysts at Deutsche Bank believe.
Analysts predict that the Federal Open Market Committee (FOMC) will announce a widely anticipated 25 basis-point rate cut on Wednesday, completing a 100-basis-point recalibration signaled in September.
However, the tone of Fed Chair Jerome Powell’s press conference and the accompanying Summary of Economic Projections (SEP) is expected to emphasize caution. Powell is expected to stress that policy remains restrictive and that the latest cut represents a modest easing of this restraint.
The Fed’s longer-run policy outlook is also expected to evolve, with the “neutral” rate—a level neither stimulating nor restraining the economy—rising to 3.1%. This adjustment aligns with Deutsche Bank’s higher-end estimates and suggests that further upgrades could be on the horizon.
Powell is likely to avoid committing to a specific timeline for additional rate cuts, opting instead for a data-dependent approach. Deutsche Bank analysts see parallels to the post-2016 election period, when the Fed took time to assess the economic impact of policy proposals.
Powell may also face questions on how the Committee is weighing upside risks to inflation and downside risks to growth. While officials have yet to incorporate new policy assumptions into their baseline forecasts, they may begin discussing their potential implications for the economic outlook.
Data-driven market moves
Monday’s New York Fed and Philadelphia Fed surveys are expected to highlight mixed but positive manufacturing trends, while Tuesday’s retail sales and industrial production should reflect a weather-related rebound.
Housing starts and permits on Wednesday will gauge the sector’s momentum, and Thursday’s jobless claims, tied to the December employment survey, alongside existing home sales and PPI data, will refine growth and inflation expectations.
Closing the week, Friday’s personal income, spending, and core PCE deflator, projected to rise slightly to 2.9%, will underscore the Fed’s cautious approach to rate adjustments.
Market implications
The Fed’s messaging and the week’s data releases are expected to shape market expectations for 2025. While rate cuts remain on the table, the central bank appears wary of easing too quickly amid stronger-than-expected economic conditions.