ALBAWABA - Despite a recent upsurge in inflation, the U.S. Federal Reserve is expected to make its last decision before President Joe Biden leaves office on Wednesday by announcing a quarter-point cut in its key lending rate.
With the expected cut, which Futures markets indicate a 95% likelihood of as reported by AFP, the benchmark rate would be one full percentage point lower than it was at the beginning of the year, ranging between 4.25% and 4.50%.
The Fed has lowered rates by 0.75 percentage points since September, shifting its emphasis from only focusing on meeting its 2% inflation objective to a more comprehensive attempt to boost the job market. Despite a modest increase, inflation is still close to the Fed's targeted level.
The Fed is also beginning a more cautious phase with this meeting as Donald Trump prepares to return to the White House, the Fed's strategy is being influenced by the uncertainties surrounding his economic proposals, such as tariffs and immigration restrictions, EY chief economist Gregory Daco told AFP.
Several analysts have expressed concern impending inflationary pressures and possible GDP slowdowns in response to Trump's economic policies. “Those two [sweeping tariffs and large-scale deportations] together tend to simultaneously stoke inflation and stem growth,” cautioned Diane Swonk, chief economist at KPMG. Despite these risks, Swonk expects the Fed to still proceed with a rate cut.
The US economy is still growing at a very strong rate. While the job market has somewhat softened, it is still robust overall. However, according to official statistics released this week, consumer prices increased 2.7% in November over the same month last year, suggesting that inflation has been growing for two months in a row, ABC News reports.
Since its high of over 9% in June 2022, inflation has sharply decreased so far. Yet, the current surge has undone some of the gains earned at the beginning of the year, which brought price hikes very close to the Fed's 2% target.
