The atmosphere surrounding the Federal Reserve's upcoming interest rate meeting is charged with anticipation and speculationAs analysts and economists prepare for the pivotal decisions that will unfold, the term “hawkish rate cut” has emerged as a point of discussion, shedding light on the intricate balancing act the Federal Reserve must perform amidst current economic indicators.

Scheduled for Thursday, a reduction in borrowing costs is widely expectedThis reduction is accompanied by updated projections regarding interest rates and economic forecasts that will extend into the initial months following the new administration taking office in JanuaryMany commentators suggest this adjustment could be characterized as a “hawkish rate cut,” a term which implies a careful and cautious approach rather than an outright aggressive easing of monetary policy.

The anticipated 25-basis point cut would set the Federal Reserve's benchmark rate within the range of 4.25% to 4.50%. This represents a decrease of one percentage point from levels where the central bank began relaxing its monetary policy back in September, in response to a surge in inflation that started in 2021. Notably, this step reflects a continued attempt to rein in inflation while simultaneously considering economic realities.

Nevertheless, uncertainty prevails regarding the pace and magnitude of future rate cuts

Current inflation rates remain elevated above the Federal Reserve’s target of 2%, and the economy appears to be growing faster than anticipatedAdditional complexities arise from potential alterations in foreign trade policies, taxes, and immigration regulations that could emerge as the new president assumes office in JanuaryThese shiftable elements create a hazy forecast for economic stability moving forward.

Emphasizing the cautious tone within the central bank, Fed officials’ latest quarterly forecasts indicated plans to lower the benchmark rate by an additional percentage point over time, contingent on various factors that will influence the economyShould these projections hold, it is suggested that by the end of 2025, the benchmark rate could settle around a more manageable 3.4%. However, such predictions necessitate an optimistic outlook tempered by the prevailing uncertainties.

Following the release of inflation data that indicates persistent inflation trends, investors are beginning to recalibrate their expectations for the upcoming year

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There’s a sentiment growing that in light of economic challenges ahead, the Federal Reserve might only opt for a total decrease in rates of around 50 basis points through the entirety of next yearConsequently, there will be a keen eye on the Fed’s proclamations and the pivotal words of Chair Jerome Powell, particularly during the conference following the policy statement, to discern how officials perceive the necessity for further easing.

Leading economists, such as those at TD Securities, have pointed out the possibility of a more cautious and measured outlook regarding future rate cutsThey anticipate that, despite a willingness to envision additional easing as far ahead as 2025, guidance about the tempo of rate reductions may become more tempered and prudent as economic dynamics evolve.

On Thursday at 3 a.mBeijing time, the Federal Reserve will unveil its policy statement alongside revised economic projections

A half-hour thereafter, the much-anticipated press conference featuring Powell will take place, setting the stage for crucial analyses moving forward.

In the run-up to this significant meeting, a slew of economic data has been released, including a robust retail sales report for November, which was unveiled on TuesdayThese compelling data points have done little to disrupt the Fed's broader assertions made since their last policy meetingThe central bank continues to celebrate the state of “solid growth” within the economy, touting a low unemployment rate, while acknowledging that inflation, while showing signs of moderation, nevertheless remains slightly above acceptable levels.

Diane Swonk, Chief Economist at KPMG, has offered her insights ahead of the impending meetingWith the unveiling of a new policy statement, a series of economic projections, and Powell’s highly scrutinized press conference in the offing, Swonk suggests that the outcome could very well be termed a hawkish rate cut

This notion conveys that the Fed's approach to future rate cuts will be characterized by a deliberate pace rather than rapid changes.

“Debate will be vigorous, as economic conditions appear stronger than what participants had anticipated when they commenced cutting rates back in September,” Swonk commented“The improvement in inflation seems to be stagnating... The Federal Reserve would prefer to pause and assess the evolving economic landscape and potential shifts in policy following the inauguration of the new president.”

The dynamics of Federal Reserve monetary policy are closely monitored globally, and intrigue builds as the central bank gears up for its first meeting in 2025, scheduled for January 28-29. Recently, a significant Reuters poll surveyed 99 economists, revealing that 58 of them share similar expectations that the Fed may choose to forgo rate cuts during this upcoming meeting