ANZ economists anticipate the United States Federal Reserve will cut the federal funds rate by 25 basis points this week, bringing the target range to 3.50–3.75 per cent. Market expectations are fully pricing in this move. However, ANZ notes that the decision is unlikely to be unanimous, with several Federal Open Market Committee officials possibly opposing the 25bp cut. At least one official is expected to advocate for a larger 50bp reduction.
Federal Reserve Chair Jerome Powell is expected to signal a cautious approach to further monetary easing. He will likely balance softening trends in the labour market against inflation that remains stubbornly above the Fed’s target. Looking ahead, ANZ projects an additional 50bp of easing next year, forecasting 25bp cuts in both March and June. These cuts would bring the federal funds rate target range to 3.0–3.25 per cent.
Recent inflation data provides support for a moderating economic outlook. The Personal Consumption Expenditures (PCE) price deflator for September rose 0.3 per cent month-on-month, while the core measure increased by 0.2 per cent. Annually, both headline and core PCE rose 2.8 per cent, suggesting that price pressures are beginning to ease.
Labour market conditions are also showing signs of softening. While official nonfarm payroll and unemployment data for October and November are not yet available, ANZ’s analysis of alternative surveys and labour indicators suggests continued easing in employment pressures.
