The Fed should be able to cut rates at next week’s meeting. According to Morgan Stanley, the outlook after that is somewhat uncertain. The US central bank is scheduled to make its final monetary policy announcement for 2024 on Wednesday. Federal funds futures are pricing in about a 97% chance of lower borrowing costs, according to CME’s FedWatch tool. “A positive signal in November’s inflation numbers should give the Fed plenty of room to cut interest rates in December,” Michael Geipen, chief economist at Morgan Stanley, told clients in a note Friday. “The Fed is likely to be more cautious about what happens after that.” Gapen said it was “very likely” the Fed would cut rates at next week’s meeting before releasing recent economic data. . He said it was now a “foregone conclusion” after the latest jobs report showed a slight rise in the unemployment rate and this week’s consumer price index showed shelter-in-place inflation easing. Looking ahead, Geipen said the Fed is likely to remain optimistic that inflation is on a downward trajectory. But he expects Fed Chairman Jerome Powell to stress that he will be “more cautious” in future monetary policy decisions. Additionally, if the Fed raises its outlook for growth and inflation while lowering its expectations for unemployment, the path to rate cuts could change. Gapen said the Fed’s dot plot should show four rate cuts in 2025, but there could be only one in 2026. In that case, the final interest rate would be 3.1%. Furthermore, the median forecast suggests there could be just three rate cuts next year. However, two more events are planned for 2026. “A 25bp rate cut in December is set in stone,” he said. “The Fed will tell us more rate cuts are coming, but the question is when and by how much.”
