Today’s quarter-point cut to key federal rates was widely anticipated, but the path of any future cuts remains very uncertain. The US labor market is well-positioned heading into 2025, which could prompt the Federal Reserve to slow down or pause its rate-cutting plans. The Fed projects continued low unemployment, steady economic growth, and persistent inflation in the year ahead — all of which may make future cuts unnecessary or even counter-productive. Inflation, in particular, remains a key challenge. Inflation is now expected to stay steady or even accelerate slightly next year, a shift from September forecasts that predicted continued declines. As a result, the Fed itself is signaling that fewer cuts may be on the horizon for 2025 than previously expected.
In many ways, today’s cut and the release of updated expectations for 2025 signals a strong vote of confidence in the current state of the economy and job market. And that optimism may trickle down to business leaders waiting for a firm signal to ramp up hiring. There is still a lot of uncertainty around the impact of any new policies enacted by the incoming administration, and there is no guarantee that the current market momentum can or will endure over the medium or longer term. But absent any big surprises, the labor market looks poised to enter 2025 with solid momentum and wind in its sails.
