Fed Meeting Minutes to Shed Light on Rate-Cut Path in 2025

The Federal Reserve's latest meeting minutes, set to be released on Wednesday, are expected to provide valuable insights into the central bank's rate-cut trajectory for 2025. In September, the Fed projected four quarter-point rate cuts for the following year, but recent economic data and policy uncertainty have led to a revision of these projections.



Inflation has proven stickier than anticipated, with the personal consumption expenditures price index now projected to end 2025 at an annual rate of 2.5%. Additionally, the committee has pushed up its projection for full-year GDP growth to 2.5% for 2025. These revised projections have contributed to a reduction in the Fed's projected rate cuts for 2025, from four to two.

Several factors have contributed to this reduction in projected rate cuts, including improved economic data, inflation stickiness, strong GDP growth, a healthy labor market, and policy uncertainty. The incoming Trump administration's policies, such as tariffs, tax cuts, and deficit spending, could worsen inflationary pressures, adding to the uncertainty surrounding the Fed's rate-cut path.



The Fed's adjustment of the offering rate for overnight reverse repos (ON RRPs) by 5 basis points to the bottom of its range (4.25%) is also a strategic move that could extend the timeline for quantitative tightening (QT). This adjustment encourages money market funds that use ON RRPs to find other places for their cash, ultimately draining ON RRPs faster to near-zero and shifting liquidity to reserves. This action allows the Fed to maintain its balance sheet reduction plan without having to pause or slow down the process.



In conclusion, the Fed's meeting minutes are expected to provide valuable insights into the central bank's rate-cut trajectory for 2025. With inflation projected to remain higher than previously expected and GDP growth revised upward, the Fed has reduced its projected rate cuts for the following year. The minutes will shed light on the factors contributing to this revision and the potential impact on the Fed's quantitative tightening timeline. Investors and market participants will be closely watching these developments as they assess the potential implications for the economy and financial markets.