The landscape of monetary policy in the United States is currently under scrutiny as economists grapple with the forthcoming decisions of the Federal Reserve (Fed). Predictions have been swirling around the potential interest rate adjustments slated for December, with a significant consensus among economists leaning towards a rate cutA reported 90% of surveyed economists believe that on December 18, the Fed will decrease the interest rate by 25 basis points, making it a pivotal moment in the economic forecasting landscape.

In light of growing concerns about inflation risks, many experts anticipate a pause in rate cuts in January following the inauguration of the new government on January 20. This political timing further complicates the economic outlook, as incoming measures from the administration, which may span from tariffs on imports to tax reforms, are predicted to contribute to inflationary pressures.

The job market in the U.S

is reflecting a complex narrative; while recent data indicates a cooling trend, the resilience of employment figures lends credibility to the Fed’s anticipatory strategies for interest rate adjustmentsFollowing the release of the latest employment report, there remains cautious optimism regarding economic strength, with Barclays' senior economist Jonathan Millar stating that although income and job growth seem robust, underlying economic fatigue requires close examinationThis is echoed by a survey where 93 out of 103 economists foresee the Fed lowering rates during its policy meeting mid-December.

The prevailing economic environment has seen the rate of the federal funds target drop by a total of 75 basis points since SeptemberYet, the January meeting is projected to maintain these rates, with perspectives on subsequent adjustments appearing fragmented among economists, showcasing a lack of clarity for future policy directions beyond the immediate timeline.

Given the Fed's current challenges, its target has shifted towards achieving a neutral federal funds rate that neither constrains nor stimulates economic growth

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This neutral rate is estimated to be around 2.9%. Fed Chair Jerome Powell recently commented on this target, noting that due to current economic strength and inflation surpassing prior expectations, the committee might exercise greater caution in determining this midpoint.

An interesting development in the economic forecasts is the prediction that by the end of next year, a significant portion of the economists—nearly 60%—expect at least three further rate cutsThese reductions, each by 25 basis points, would lower the federal funds rate to between 3.50% and 3.75%. However, this represents a marked decline from earlier surveys, where expectations were considerably higher.

As observed by Barclays' Millar, debates regarding the extent of monetary policy restrictions and estimations of the neutral rate might intensify in the coming yearIndeed, implications from increasing tariffs could also imply prolonged periods of elevated core inflation extending into 2025, potentially limiting the feasibility of multiple rate cuts in the coming months.

The survey results illuminate a fascinating picture of the growth trajectory for the U.S

economyRecent data indicate a GDP annualized growth rate of 2.8%, signifying stable momentumLooking ahead, forecasts suggest a growth rate of 2.1% for the following year and 2% for 2026, both figures surpassing the Fed's current projection of 1.8% for non-inflationary growth over the next few years, thus serving as critical reference points for market analysts and policymakers alike.

As the economic forecast extends into 2025, the anticipated inflationary landscape presents a distinct shift, suggesting an upward trajectory in inflation expectations compared to the previous monthAmong the 48 economists surveyed, a substantial 75% anticipate considerable inflationary risks in the coming year, while a minority presents a contrasting viewpoint, arguing that such risks remain comparatively low.

Furthermore, David Seif, the Chief Economist for developed markets at Nomura, highlights that in the medium term, the incoming government's proactive trade policies, compounded with rising tariffs and potential supply chain disruptions, could forecast that core inflation rates may exceed 3% significantly by mid-2025. This bears substantial weight for economic strategy, as the interplay between fiscal policy and inflationary pressures continues to occupy the minds of both economists and policymakers.

The impending changes in the monetary policy landscape reflect broader narratives surrounding the global economy, with interrelated factors such as employment rates, inflation expectations, and political shifts converging to create a climate of uncertainty