Fed Expected to Slow Down Rate Cuts Amid Stronger Economy and High Inflation

The Federal Reserve is anticipated to slow the pace of its interest rate cuts, despite the economy's resilient performance, due to concerns over inflation remaining above its 2% target. This decision likely reflects the Fed's cautious approach in response to the emerging picture of a stronger-than-expected economy, coupled with uncertainty surrounding President-elect Donald Trump's policies.

Policymakers forecast fewer rate cuts in the coming year, potentially bringing the benchmark rate down to 4.3% by the end of the year. The expectation is for the Fed to cut rates at its meetings with increasingly longer intervals, possibly shaving off just one rate once every other meeting, if required. This more measured approach is attributed to persistent inflation pressures, currently sitting above the 2% mark, and the uncertainty tied to Trump's proposals and their potential impact on the economy.

Federal Reserve Chair Jerome Powell is expected to send a signal reflecting this cautious stance during upcoming statements. His reasoning will be centered around a strong economy and the pervasive nature of inflation, which is proving stubborn despite the central bank's actions. The ongoing dicussion surrounding Trump's plans adds another layer of uncertainty to the Fed's considerations, pushing them to maintain a rate that keeps them above the neutral level, thereby maintaining a deliberate and restrained rate-setting approach.

The broader implications of this decision and the specifics of Trump's policies will require close monitoring in the coming months. For now, the Fed's upcoming actions are more about sustaining the current monetary stance rather than actively stimulating further growth, offering a glimpse into the Fed's continuing cautiousness in the face of high inflation and an uncertain macroeconomic outlook.