Economic and Political Challenges Facing the Federal Reserve in 2025

The financial and economic world will turn its attention this evening, Wednesday, December 18, 2024, at 22:00 Mecca time, to the results of the Federal Reserve meeting. This announcement follows two days of meetings, during which the Federal Open Market Committee will release its statement on interest rates and updated quarterly economic forecasts for the U.S. economy. Half an hour later, the press conference of the Fed Chairman Jerome Powell will take place, which is of great importance as it is the last Fed event of the year. This meeting is particularly sensitive as the Fed faces significant internal and external challenges. Markets and investors will closely follow every statement or indication regarding the future direction of monetary policy and interest rates, especially in light of the political and economic shifts in the U.S. following Donald Trump's election victory and his upcoming inauguration next month, with significant economic and geopolitical issues to be addressed in the coming year.

📌 I believe the Federal Reserve will cut benchmark interest rates by a quarter percentage point, or 25 basis points, with the stabilization of November's inflation reading supporting this move. This cut will be the third in 2024, bringing the total reduction to a full percentage point from its peak in early September. The most important aspect of this meeting is the quarterly economic forecasts for the U.S. economy, including inflation, interest rates, growth, wages, and employment. What investors really want to know is the central bank's plans for the coming year. In this regard, I believe the Federal Reserve may move towards a series of interest rate cuts in 2025 if inflation continues its downward trend towards the target level of around 2%. These cuts are expected to be gradual, ranging between 1.0% and 1.25%, spread over the year's meetings to avoid economic shocks and ensure sustainable growth. The monetary policy path in 2025 will depend on several key factors:
Among them:
🟢 Labor market performance
🟡 Inflation stability
🔴 Global economic challenges
🔵 New administration policies – Donald Trump's presidency

With inflation rates stabilizing near the desired target of 2%, the Federal Reserve is expected to gradually reduce interest rates to support economic growth. This approach comes amid the continued weak performance of some major economies and the potential slowdown in global demand, which could impose additional pressures on the U.S. economy. With Donald Trump assuming the presidency next month, this will add a new dimension to the equation, as the administration's fiscal and tax policies are expected to directly impact the Federal Reserve's decisions. If the administration increases government spending on infrastructure or adopts expansionary fiscal policies, it could boost economic activity but also raise the federal deficit, posing new challenges for monetary policy.

Given these factors, 2025 is expected to see a delicate balance between supporting economic growth and controlling inflation, making interest rate cuts a carefully considered step, closely monitored for economic developments and data. Trump will be inaugurated before the next Federal Reserve meeting on January 29, 2025.

📢 Jerome Powell's Press Conference: What to Expect?
After the interest rate decision and the monetary policy statement, including the quarterly forecasts, the press conference of Federal Reserve Chairman Jerome Powell will begin half an hour later. I believe it will address the current economic conditions and future expectations for 2025, including the path of interest rates, the performance of the U.S. economy, and the internal and external challenges facing the markets. The discussion will also focus on Donald Trump's upcoming presidency next month and the ongoing wars in the Middle East, which will be a significant topic of discussion.

Powell, who has been the Federal Reserve Chairman since 2018, is known for his precision and transparency in press conferences, but he is also adept at evading some of the deeper questions posed by major news outlets.

📌 In my personal opinion, I, Abdul Rahman Al-Asfar, believe that Jerome Powell has proven himself to be an exceptional leader with a remarkable vision and crisis management skills since he took office on February 5, 2018, nearly seven years ago. He has faced some of the toughest challenges in the history of global markets, starting with the trade war that affected global economic balance, through the unprecedented economic paralysis caused by the COVID-19 pandemic, supply chain complexities, and excessive inflation. Powell has demonstrated an exceptional ability to make decisive decisions in difficult times, with a commitment to transparency and flexibility. Thanks to his approach, he has managed to maintain market stability amid global turmoil to a considerable extent. His comments have served as a compass for the markets, as he tends to provide a comprehensive analysis of economic trends while maintaining a cautious tone. ✔️

In his expected comments for 2025, I believe he will also point to the possibility of a gradual reduction in interest rates, especially if inflation continues to decline towards the desired target of 2%. However, Powell will emphasize that any decision regarding monetary policy will remain conditional on the stability of labor markets and the continuation of inflation rates within safe levels, with a focus on the importance of relying on accurate economic data before taking any steps. Powell is also expected to address the impact of the new administration's policies under Donald Trump, which may include significant increases in government spending, particularly on infrastructure projects, or changes in the tax system to stimulate investment. Such policies, while supporting economic growth, could also increase the federal deficit, posing additional challenges for the Federal Reserve in managing monetary policy.

Moreover, Powell is likely to warn of the risks arising from ongoing wars in the Middle East and geopolitical tensions, pointing to their potential impacts on the U.S. economy, such as rising energy prices, import costs, and slowing global trade, which could add pressure on supply chains and financial markets. Overall, Powell's messages will revolve around the need to make carefully balanced decisions in 2025 to ensure long-term economic stability in the face of domestic and global challenges.

In conclusion, dear friends, this evening is important as it outlines clear paths for what will happen in the coming year. I recommend caution and close monitoring. As always, the research and studies team at the Arab Business Academy will cover this event this evening on our website's general blog section, my official Telegram channel, and specialized VIP groups. Wishing you profit and success. 🤝🔝

Financial and Technical Analyst,
Abdul Rahman Al-Asfar