Fed Likely to Hold Rates Steady in December; Up to Three Cuts Expected Next Year

Bank of Korea: "Possibility of a More Cautious Fed Policy Raised"

The market is closely watching the possibility that the US Federal Reserve (Fed) will keep its benchmark interest rate unchanged at the upcoming Federal Open Market Committee (FOMC) meeting in December.

According to the New York office of the Bank of Korea on November 18, two out of ten major global investment banks (IBs)-Bank of America (BoA) and Nomura-are predicting that the Fed will hold rates steady for the remainder of the year. As recently as last month, BoA had forecast one rate cut this year, while Nomura had expected two. However, both banks revised their outlooks to no change this month. Notably, given that one rate cut actually occurred at the end of last month, Nomura effectively reduced its expected number of cuts.

Jerome Powell, Chairman of the Federal Reserve (Fed).

The Bank of Korea also explained that the policy rate path reflected in the futures market has risen compared to a month ago. On November 3, the projected rates were 3.64% for December 2025, 3.53% for January 2026, 3.41% for March, and 3.35% for April. As of November 10, these projections were revised upward to 3.72%, 3.62%, 3.52%, and 3.46%, respectively-an increase of about 0.1 percentage points each. In fact, according to CME FedWatch as of November 17, the probability that the Fed will hold rates steady in December stands at 57.1%, while the likelihood of a 0.25 percentage point cut is 42.9%.

Regarding this, the Bank of Korea analyzed, "Investment banks believe the Fed may implement an additional 0.25 to 1.00 percentage point rate cut in response to a slowdown in the labor market. However, if economic growth proves more robust than expected and the unemployment rate remains stable, there is also the possibility that the Fed's cautious stance could be further strengthened." The bank added, "This trend is contributing to a higher projected rate path for next year compared to previous forecasts."

Meanwhile, major investment banks are converging on the outlook that the Fed will cut rates a total of three times by the end of next year. Six out of ten banks expect the final rate (upper bound) to reach around 3.25% per year, suggesting three additional 0.25 percentage point cuts from the current 3.75-4.00% range.

By institution, Barclays, Citi, Goldman Sachs, and Wells Fargo expect the rate to fall to 3.00-3.25% through one cut this year and two more next year. Morgan Stanley projects one cut this year and three next year, with a final rate of 2.75-3.00%. JP Morgan forecasts one cut each this year and next year, resulting in a final rate of 3.25-3.50%.

Additionally, Deutsche Bank expects one cut this year, with a final rate of 3.50-3.75%. TD projects one cut this year and three next year, estimating a final rate of 2.75-3.00%. While the lowest forecast at the beginning of last month was 2.75% (Morgan Stanley), TD's 3.00% has become the lowest expected rate as of this month.