Fed Rate Cuts: What's Next for 2025? Dear Reader, As the end of the year is quickly approaching, everyone is trying to take care of their end-of-year “to-do” list. Whether it’s finishing work, last-minute shopping, wrapping gifts or preparing food... the lead-up to the holidays can get pretty hectic. The Federal Reserve also had one piece of business to conclude before closing the book on 2024. I’m referring to the last Federal Open Market Committee (FOMC) meeting of 2024, which wrapped up on Wednesday. The Federal Reserve just put a bow on the year by gifting investors one final key interest rate cut this year. But before we get to that, let’s just take a moment to reflect on what happened this year with the Fed... When 2024 began, the general consensus was that we would likely see our first rate cut in the spring. But as the key inflation reports rolled out, they showed that prices were still a bit too sticky. It wouldn’t be until September when, citing substantial progress in the battle to tame inflation, the Fed cut rates for the first time since March 2020. Not to mention it was a 0.5% “jumbo” cut! As the year progressed, while prices still remained above the Fed’s 2% target, it became clear that the Fed was beginning to see cracks in the labor market. So, the next cut came on November 7, just two days after the election – and this time around, it was a 0.25% cut. That brings us to this week when the Fed held its December meeting. Leading up to the meeting, an overwhelming consensus had emerged that we’d get another 0.25% rate cut. But the critical question on everyone’s mind was… where does the Fed go from there? Well, the Fed’s latest “dot plot” survey provided the answer. So, in today’s Market 360, let’s talk about the FOMC statement and what the dot plot revealed. Then I’ll share what we should take away from this news and how you can prepare for what’s next… The December FOMC Statement As expected, the Fed cut rates by 0.25% to a new range of 4.25% to 4.5%. But this was not a unanimous decision. Cleveland Fed President Beth Hammack was the only official to dissent. Let me remind you that at the September meeting, we also had a dissenting vote… the first one since 2005 in fact. And now we just had one more. But, most important was the dot plot. The current consensus is for two rate cuts in 2025. September’s dot plot forecasted four cuts.  During Fed President Jerome Powell’s press conference, a comment stood out: Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. We see the risks to achieving our employment and inflation goals as being roughly in balance and we are attentive to the risks on both sides of our mandate. And when it came to timing, Powell merely said that “we're not on any preset course.” But then during the Q&A section, when asked point blank about future cuts, he stated: I think that the slower pace of cuts for next year really reflects both the higher inflation readings we've had this year and the expectation inflation will be higher… I think the actual cuts that we make next year will not be because of anything we wrote down today. We're going to react to data. Here’s my takeaway, folks. The market slid in the wake of the Fed’s decision, largely because of the dot plot. It seems that investors are worried that the Fed is going to start tapping the breaks in 2025. After all, the economy is in decent shape, and recent data hasn’t shown much more progress in bringing down inflation. So, yes, there may be a slowdown in rate cuts to start the year, but I don’t want you to worry. The reality is the Fed can’t see that far ahead. But I want you to keep this in mind as we head into next year... Europe is mired in a deep recession. As a result, the European Central Bank will likely cut its key interest rate four to five more times next year, and this will drag our Treasury yields lower. As I always point out, the Fed doesn’t like to fight market rates. So, the Fed may end up cutting rates more than just twice due to the downward pressure from European rates. Looking Ahead to 2025 Either way, it is important to set your portfolio up to succeed regardless of what happens in 2025. I’m talking about investing in stocks that will “zig” when others “zag” – which will give your portfolio an extra boost when the broader market rallies, as well as protect it if the broader market turns south. And these are exactly the kinds of stocks I focus on in my Growth Investor service. In fact, my Growth Investor stocks are “locked and loaded” for a strong year-end rally with 23.6% average annual sales growth and 515.9% average annual earnings growth. And considering that earnings growth is expected to reaccelerate in the new year, I am expecting a strong start to 2025. But this is just one of the expectations I have for 2025. I’m going to share a handful of other predictions with my Growth Investor subscribers in their January Monthly Issue tomorrow. I also have two new buys with superior fundamentals that I think are set for a prosperous 2025. To gain access to these two picks, as well as my January Growth Investor issue, click here now. Sincerely, | .png)
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