An easy FOMC with an expected level

~ The Federal Reserve (Fed), the U.S. central bank, cut its key interest rate by 0.25 percentage points on the 10th (local time) in consideration of slowing employment.

However, disagreements within the Fed are still prominent over whether to focus more on high prices or rising unemployment, and a new chairman appointed by President Donald Trump will lead the Fed next year, making it difficult to predict the direction of the benchmark interest rate.

After a regular meeting of the Federal Open Market Committee (FOMC), the Fed said it decided to lower the benchmark interest rate from 3.75 to 4.00 percent to 3.50 to 3.75%. Nine out of 12 voting members agreed, and three disagreed.

It is the third and third consecutive rate cut this year.

Earlier, the Fed also cut it by 0.25 percentage points in September and October.

The Fed’s decision narrowed the interest rate gap between Korea (2.50 percent) and the U.S. to 1.25 percentage points.

At this meeting, which was the last FOMC of the year, the Fed presented a median of 3.4% of its key interest rate expectations at the end of next year.

This is the same as last September’s forecast.

Considering the expectation at the end of next year and the current interest rate, one 0.25 percentage point cut is possible next year, but some say that it is difficult to predict whether or not to cut interest rates next year due to the wide gap between FOMC members.

At a press conference on the same day, Powell drew attention by saying that the benchmark interest rate was within the range of an estimated “neutral” interest rate.

The New York Times (NYT) and others evaluated that the remarks can be interpreted as meaning that they cannot guarantee a rate cut next year because neutral interest rates mean the level of interest rates that the Fed aims for, neither boosting the economy nor putting pressure on the economy.

In this policy decision, the Fed used the expression “in consideration of the degree and timing of further adjustments” in relation to future base rate decisions, and “degree and timing” was not used in October.

Experts predicted that the Fed could delay or suspend the timing of future interest rate cuts.

“We are in a good position to wait and see how the economy evolves from now on,” Powell said, suggesting that the situation could be watched for the time being.

Regarding the Fed’s two goals of achieving the maximum employment rate in the long term and keeping prices at 2%, the Fed said in its policy decision that “the committee cares about the risks on both targets and believes downside risks to employment have increased in recent months.”

The Fed called inflation “still somewhat high.”

He also predicted economic growth of 2.3% next year, saying, “Uncertainty over the economic outlook is still high.”

This is 0.5 percentage points higher than the 1.8% forecast in September. It is 0.6 percentage points higher than this year’s expected growth rate of 1.7%.

Powell said the increase in the growth outlook was driven by higher productivity and part of that improvement could be attributed to artificial intelligence (AI).

Next year’s unemployment rate is expected to be 4.4%, the same as in September.

Inflation is expected to fall from 2.9% this year to 2.4% next year.

Disagreements were also expressed among 12 members of the FOMC who had the right to vote on whether or not to cut the benchmark interest rate and its breadth.

Stephen Myron, a close aide appointed by President Trump as a Fed board member, insisted on a 0.50 percentage point cut this time, as he did in September and October.

Kansas City Fed President Jeffrey Schmid and Chicago Fed President Ostan Goolsbee were frozen.

According to the Wall Street Journal (WSJ), it is the first time in six years that three people have expressed different opinions at FOMC.

According to a dot plot containing the opinions of 19 Fed participants on the future economic outlook, seven participants expressed the opinion that cuts were not necessary next year, while eight thought at least two cuts were necessary.

Another important variable in the Fed’s interest rate decision next year is the replacement of the Fed chairman.

Some predict that if President Trump, who has called for a rate cut, appoints a close aide to Powell, whose term ends in May next year, and replaces some directors at his disposal to take control of the Fed, more rate cuts could be made than once.

According to CNN, Chris Rupkey, an economist at Fwdbonds, a financial market analyst, predicted, “The fact that a new Fed chair will take office in 2026 and maybe more new Fed directors will mean more rate cuts next year.”

After the announcement of the benchmark interest rate, President Trump criticized the Fed for not lowering interest rates sufficiently at an economic roundtable event at the White House.