Opinion: Will the Fed Continue to Cut Rates?

Recent economic trends have propounded a variety of perspectives on all sides over the future of interest rates, reflecting the complexities and uncertainties inherent in the global financial landscape. Analysts and economists are engaged in an ongoing debate, examining numerous factors that could influence the trajectory of interest rates in the coming months and years. These factors include inflationary pressures, central bank policies, labor market dynamics, and geopolitical developments.

However, there is clearly one way in which the Fed will continue its efforts to cut rates over the new few months: cautious progression.

Recent inflation data indicates a small uptick of inflation ever since the Fed's initial half-of-a-basis-point rate cut in September. Inflation levels rose from just about 2.6% to approaching 3%, a substantial increase. Therefore, significant rate cuts like September's will be highly unlikely, as it could spark the rise of inflation.

Yet, the economy is struggling to prosper due to high rates. Many companies are reporting lower earnings, while many Americans face rising debts due to compounded interest on their loans/mortgages. Additionally, the incoming Trump administration has made rate cuts a key policy priority, pressuring the Fed to act before sections of the government contradict in terms of fiscal approach.

A rate cut of about a quarter (more or less) of a basis point is much more likely. It avoids inflation volatility, while also pursuing the Treasury's agenda of bringing rates down.