The December Federal Reserve Meeting Started Tuesday—What You Need to Know

The Federal Reserve’s policy committee kicked off its two-day meeting on Tuesday, and the outcome of the gathering could have implications well into the new year.

The Federal Reserve Open Markets Committee (FOMC) is meeting for the last time this year and will announce its policy decisions on Wednesday afternoon. The committee is widely expected to cut its influential federal funds rate by a quarter point and could discuss other more technical policy adjustments.

Officials cut the fed funds rate from a two-decade high for the first time in four years at their September meeting, and reduced the rate again last month. Cutting as expected this week would bring the total reduction this year to a whole percentage point.

Despite the Fed’s immediate moves being fairly predictable, the changing economic landscape presents some questions for central bankers as they move into the new year. Here’s what you need to know.

How Has the Economic Picture Changed Since November?

The economic landscape has changed some since the last time the committee met in November. Unemployment has not risen as much as central bankers expected and inflation hasn’t cooled as much as the committee had hoped.

The FOMC uses interest rates as a tool to stimulate or stifle the economy. When the economy is running too hot and fueling inflation, the committee will raise rates to discourage borrowing and spending. When the economy slows, it usually brings a wave of layoffs, which the committee attempts to avoid by lowering rates and encouraging spending.

Concerns about rising unemployment fueled the initiation of this cycle of rate cuts. But with continued strong consumer spending and steady job data, the Federal Reserve could be running out of reasons to cut its influential interest rate.

So, Why is the Fed Still Likely to Cut Its Key Rate?

Since the economy has been shifting this month, some wonder why the Federal Reserve would cut its key interest rate this week. A CNBC survey released Tuesday showed that while 93% of respondents think the Fed will cut by a quarter-point at this meeting, only 63% believe it’s the right move.

Some economists said central bankers are likely to proceed with their highly telegraphed move because traders now expect it, even if they disagree with it.

“The Fed will likely follow through so as not to thwart expectations but the odds it will take a pause in January have increased,” wrote Bob Schwartz, Senior Economist at Oxford Economics.

What Does This Week’s Meeting Mean for Policy in the New Year?

Fed watchers will learn in more detail what recent economic data means for the central bank when it releases its Summary of Economic Projections on Wednesday, in conjunction with its policy decision.

The projections are a snapshot of individual committee members’ best guesses on the future of unemployment, inflation and rate cuts. Economists expect that the average prediction will be three rate cuts in 2025, fewer than were expected when they last published their expectations in September.

Watchers will also listen for clues on the path ahead when Chair Jerome Powell addresses reporters after the decision is published.

“Chair Powell’s press conference will likely send a consistent signal that the Fed is set to slow the pace of rate cuts in 2025,” wrote Deutsche Bank economists last week.