The Fed is set to meet on January 28 for its Federal Open Market Committee (FOMC) meeting, although the odds of a rate cut have fallen even lower after the Bureau of Economic Analysis (BEA) announced that U.S. gross domestic product (GDP) grew by 4.3% during the third quarter, above the estimate of 3.3% and rising from 3.8% during the prior quarter.
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In addition, inflation remains persistent, with core personal consumption expenditures (PCE) tallying at 2.9% during the quarter. Core PCE is the Fed’s preferred gauge on inflation and remains above the central bank’s target of 2.0%.
January Rate Cut Odds Drop to 13.3%
The odds of a 25 bps rate cut at the January FOMC are now at 13.3%, down from 19.9% yesterday and 24.4% a week ago, according to CME’s FedWatch tool. With the economy posting strong growth and inflation still above target, the Fed has more reason to hold rates steady. A lower rate can drive inflation higher, as it tends to stimulate consumer and corporate spending, and overheat the economy.
The Fed has a dual mandate of maximizing employment and keeping inflation at bay. While the labor market has shown signs of softening, several Fed officials believe that the risk of inflation outweighs concerns about slowing jobs growth.
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