"Hana Securities Predicts Phase Shift at December FOMC, Forecasts Three Rate Cuts Next Year"

Jerome Powell, Chair of the U.S. Federal Reserve (Fed)

Hana Securities predicted on the 19th that the December Federal Open Market Committee (FOMC) meeting signaled a transition to a new phase and anticipated the possibility of three interest rate cuts in 2025.

Earlier, at the December FOMC, the U.S. Federal Reserve (Fed) lowered the target range for the policy rate by 25 basis points (bp) to 4.25?4.50%. The rate cut was decided by an 11-to-1 vote, with Beth Hammack, the successor to Loretta Mester as President of the Federal Reserve Bank of Cleveland, opposing the rate cut.

Researcher Jeon Gyu-yeon evaluated, "This rate cut decision met market expectations, but through the upward revision of the quarterly economic outlook and the dot plot, it suggested a moderation in the pace of rate cuts in 2025, signaling a transition to a new phase."

He added, "The dot plot was hawkish," explaining, "The 2024 dot plot aligns with the current rate at 4.4%, but four members, including President Beth Hammack, proposed 4.6%, indicating a preference for holding rates steady this year."

He further noted, "For 2025, the rate was revised upward from 3.4% to 3.9%, for 2026 from 2.9% to 3.4%, and for 2027 from 2.9% to 3.1%, suggesting two rate cuts each in 2025 and 2026," adding, "Meanwhile, the neutral rate was raised to 3.0%, marking four consecutive upward revisions (March, June, September, December)."

Researcher Jeon stated, "This FOMC is judged to have presented a cautious forward guidance reflecting uncertainties about the future inflation path," and added, "However, Chair Powell mentioned in the press conference that 'if the economy and labor market remain strong, we can be cautious about further rate cuts.'"

He continued, "This means that moderation in the pace of rate cuts is possible only if the labor market does not deteriorate," pointing out, "Given that the U.S. unemployment rate rose to 4.2% in November, next year's unemployment rate could exceed the Fed's forecast (4.3%), which could be a basis for more rate cuts next year than indicated in the December dot plot."

He emphasized, "Hana Securities expects the Fed to implement three rate cuts (75bp) in 2025."