ANZ economists anticipate the US Federal Reserve will cut the federal funds rate this week by 25 basis points, bringing the target range to 3.50 to 3.75 per cent. Markets have already factored in this expected reduction. However, ANZ notes the decision may not be unanimous, with some officials potentially dissenting and at least one possibly advocating for a larger 50 basis point cut.
Federal Reserve Chairman Jerome Powell is expected to communicate a measured approach to future monetary policy adjustments, acknowledging both softening employment trends and stubbornly high inflation. ANZ projects further easing next year, forecasting a total of 50 basis points in additional cuts, implemented in March and June. These cuts would bring the target range down to 3 to 3.25 per cent.
Recent inflation data provides support for a moderating outlook. The September Personal Consumption Expenditures (PCE) price deflator showed a 0.3 per cent month-on-month increase, while the core measure rose 0.2 per cent. Annually, both headline and core PCE increased by 2.8 per cent, indicating a potential easing of inflationary pressures.
Labour market conditions are also displaying signs of cooling. Although October and November nonfarm payroll and unemployment figures are not yet available, ANZ’s analysis of alternative surveys and labour indicators suggests a continuing moderation in employment pressures. This data reinforces the expectation of a rate cut to support economic stability.
