Bittime - The results of the December 2024 FOMC Meeting for 2025 outline the direction of monetary policy, interest rate projections and future economic challenges. Check out the complete explanation in this article!
The Federal Open Market Committee (FOMC) has completed its December 2024 meeting with a number of important decisions. This decision will determine the direction of United States monetary policy in 2025.
At the meeting, the FOMC again lowered the benchmark interest rate by 25 basis points (bps), bringing the total reduction since September 2024 to 100 bps. However, their statements show caution regarding future policy projections.
Are you curious about the results of the December 2024 FOMC meeting? The following is the contents of the decision.
Non-Committal Attitude on Policy 2025
Although the market had anticipated an interest rate cut, the tone of the FOMC statement this time was more cautious. The projected interest rate for the end of 2025, which was previously at 3.4%, has now been postponed to the end of 2026.
On the other hand, the long-term estimate was only slightly raised from 2.9% to 3.0%. This reflects confidence in the effectiveness of monetary policy to suppress inflation, although decision making remains gradual.
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Stable Economic Projections with Risks Lurking
The FOMC's view of economic growth in 2025 is relatively stable although the projection for 2024 increased to 2.5% from 2.0%. Growth in 2025 is predicted to reach 2.1%, before decreasing to 2.0% in 2026 and 1.9% in 2027.
This figure is still higher than the long-term trend of 1.8%. The unemployment rate is expected to remain stable at 4.3% during 2025 to 2027, only slightly higher than the current rate of 4.2%.
However, inflation is projected to increase to 2.5% in 2025 before returning to the 2.0% target in subsequent years. Factors such as import tariffs and inflation that will persist from 2024 are said to be the main causes of this increase.
Slower Interest Rate Cuts
With solid growth and inflation risks coming to the fore, the FOMC slowed the pace of rate cuts. For 2025, only two rate cuts to 3.875% are anticipated, fewer than the four previously projected.
The following year, two more cuts are expected to occur, bringing the interest rate to 3.375% at the end of 2026. Meanwhile, the long-term projection of 3.0% is still lower than the estimate for the end of 2027 of 3.125%.
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Challenges and Risks Ahead
The FOMC highlighted a number of risks that could affect the achievement of inflation targets and the unemployment rate. Although economic growth and the labor market are considered balanced, challenges such as fiscal policy uncertainty and the impact of import tariffs on inflation may affect economic stability.
The projection range for the unemployment rate until the end of 2026 is quite wide, namely between 3.9% and 4.6%. Likewise, GDP growth is predicted to be in the range of 1.4% to 2.5%.
Market Reaction
Markets respond to FOMC decisions with high volatility. The S&P 500 plunged 2% in the afternoon after the announcement, one of its worst performances since January 2024.
The two-year Treasury yield rose 11 basis points to 4.35%, while the US dollar strengthened.
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Conclusion
The results of the December 2024 FOMC meeting show that 2025 will be a challenging period for US monetary policy. Despite relatively stable economic projections, inflation risks and policy uncertainty remain major concerns.
With the careful steps taken by the FOMC, it is hoped that markets and economic players can prepare to face the existing dynamics.
FAQ
What does FOMC stand for?
The Federal Open Market Committee, or FOMC, is the Fed's primary body for monetary policy.
When how many FOMC is held?
The two-day meeting started on December 17 and will end on December 18, 2024. The decision on interest rates along with the FOMC projections will be announced on December 18 at around 14.00 Eastern Time (ET) or 12.30 Indian Standard Time (IST).
What role does the FOMC play?
The Federal Open Market Committee, or FOMC, is the body that decides appropriate monetary policy by setting a target for the federal funds interest rate. FOMC policymakers rely on a variety of information in their assessments and deliberations.
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Reference
forexlive, 5 key take home points from FOMC day - nailed it or failed it?, accessed December 19, 2024.
Westpaciq, Risks in focus for FOMC heading into 2025, accessed December 19, 2024.
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