"FOMC, Hawkish 0.25% Rate Cut" Forecast

US Experts Divided on 0.5% vs 0.75% Rate Cut Next Year

Uncertainty Over Trump's Tariff, Tax, and Immigration Policies

Experts predict that the Federal Reserve's interest rate decision, to be announced at 2 PM Eastern Standard Time on the 18th (4 AM Korean time on the 19th), will be a "hawkish cut."

According to foreign media, the Fed is expected to lower the federal funds rate, the benchmark interest rate, by 0.25% to a range of 4.2% to 4.50%. This is 1% lower compared to when the tightening monetary policy, which began in 2021 due to soaring inflation, peaked at 5.5%.

The Fed will also present its initial quarterly economic outlook for the Trump administration starting in January next year. The early quarterly economic outlook is being closely watched as it influences the impact of the initial policies of the Trump administration and the interest rate path for next year.

The dot plot, which indicates the expected interest rate path, is particularly important. The market remains uncertain about how much and how quickly rates will fall next year. This is because Trump's tariff, tax, and immigration policies could unpredictably alter the economic landscape.

According to a Reuters survey, the prevailing view among economists and market participants is that the Fed will cut rates twice next year, by 0.5%.

However, a significant number of economists surveyed by Bloomberg News expect a 0.75% cut over three occasions next year.

This reflects the difficulty economists and market participants face in predicting the effects of Trump's policies.

When the Fed released its quarterly economic outlook in September, before the US presidential election, the dot plot indicated that the benchmark rate would be cut by an additional 1% to reach 3.4% by the end of 2025.

Economic data released in the months following showed that employment and economic growth were stronger and inflation was slightly higher than when the Fed cut rates in September.

Diane Swonk, chief economist at KPMG, noted that the new policy statement, outlook, and Powell's press conference suggest a high likelihood of a "hawkish cut."

She stated, "The economy is stronger and inflation improvement has stalled compared to what the Fed thought when it started cutting rates in September." Therefore, the Fed is expected to "pause to reassess the changes in policy since Trump's inauguration and the current position."

Trump will be inaugurated on January 20, and the Federal Reserve will hold a meeting on January 28-29. In a recent Reuters poll, 58 out of 99 economists predicted that "the Fed will not cut rates at the January meeting."

Kim Jung-ah, Guest Reporter kja@hankyung.com