Despite mounting concerns among other policymakers that inflation is still too high, Federal Reserve Chair Jerome Powell is anticipated to push through another quarter-point interest rate drop this week.
The abrupt decline in the US labor market throughout the summer prompted the Fed to implement a second consecutive cut in October.
However, other officials, including five who would vote on policy this year, expressed hawkish worry after that, indicating that they were hesitant or unwilling to support a third move in December.
The lack of new economic data as a result of a government shutdown that lasted for a large portion of October and November has made that widening gap worse.
Policymakers currently have access to the most recent inflation data, which was issued on December 5 and is for September. This report is unlikely to change the course of the policy discussion.
In light of this, investors expressed grave skepticism about the possibility of another cut for around a week in mid-November. However, on November 21, New York Fed President John Williams, who is seen to be firmly aligned with Powell, stated he saw potential for a cut in the "near term," ending the exceptional level of drama. After taking the signal, the market now gives a move next week a likelihood of over 90%.
The Fed will then take a hiatus before making two more cuts in 2026, in March and September, according to economists surveyed by Bloomberg.
Additionally, there is some hope that the current conflict between the Fed's duties to maximize employment and control inflation would be resolved by an abundance of fresh data when statistical agencies catch up from the shutdown.
Nevertheless, there will be more Fed drama soon. Powell's term as chair ends in May, and President Donald Trump is anticipated to appoint a successor shortly.
The front-runner is senior economic adviser and Trump supporter Kevin Hasset. Some investors are concerned that the new chair would follow Trump's lead and slash interest rates, which might lead to inflation.
Will it even matter if Powell adopts a hawkish stance during the press conference in order to placate hawkish regional Fed presidents? After all, Powell would essentially be a lame duck for the final few months of his chairmanship if Hassett, the front-runner for the position, joined the board as early as February.
The Bank of Canada is anticipated to maintain its rate at 2.25%, in contrast to the Fed. That's "about the right level," according to officials, provided inflation and economic projections come to pass.
Although third-quarter GDP exceeded forecasts, personal consumption fell while lower imports and increased military spending played a major role.
At 2.2%, inflation is almost at target, but core metrics are still high. A new chair will be chosen by the finance chiefs of the euro-area, while decisions made by central banks in Australia, Switzerland, and Brazil will garner attention.
