Will the next interest rate meeting lower the rates? It depends on two factors.

Interest rate hikes and cuts are commonly used monetary policies by central banks, which have a significant impact on the national economy. The monetary policy of the Federal Reserve in the USA is particularly sensitive to the Global market.

What pace will the Federal Reserve take in lowering interest rates next? How strong will it be? How long will it last? This video will explore these questions.

Whether the Federal Reserve will lower interest rates mainly depends on two economic data points.

First, let's start with the basis for the Federal Reserve's interest rate cuts.

The Federal Reserve has two core objectives: the first is to maintain price stability in the USA, and the second is to ensure as many people as possible have jobs.

Therefore, analysts mainly determine the Federal Reserve's next moves based on these two factors: prices and employment.

The key data reflecting price levels is the CPI, which is published monthly. As for employment conditions, people usually look at non-farm payroll data, which is also published monthly.

When employment data worsens, a rate cut is considered; when price levels are too high, a rate hike is considered.

However, balancing inflation and employment is often difficult; generally, boosting one will lead to a decline in the other. Nevertheless, there are exceptional cases.

Looking back at the last interest rate hike cycle: to control inflation, there was a round of aggressive interest rate increases from March 2022 to September 2023. Compared to previous hikes, this cycle had a relatively short duration but a significant cumulative increase, raising rates from nearly 0% to 5-5.25% within 14 months. This round of rate hikes was effective in successfully reducing the inflation rate.

By the end of 2023, the market was already eagerly anticipating the arrival of interest rate cuts, and Powell began to provide various hints that it would happen soon. However, as a highly influential institution, the Federal Reserve cannot announce cuts without supporting data.

So next, we are looking at the non-farm employment data. In fact, before the previous announcement of interest rate cuts, there was a small twist.

On August 21, 2024, the USA Bureau of Labor Statistics revised the non-farm employment data for the period from April 2023 to March 2024. The revised data showed a decrease of 0.818 million compared to previous reports. While revisions happen frequently, a downward adjustment of over 800,000 is the largest in nearly 15 years. Nevertheless, the inflation rate has decreased, employment data has worsened, and now it can officially begin to cut rates.

Before every Federal Reserve meeting, the market pays close attention to CPI and employment data, as these figures determine whether the Federal Reserve will cut rates soon and the extent of those cuts.

For example, before the November meeting, when the September CPI and employment data exceeded expectations, the market began to speculate: would the Federal Reserve not cut rates this time? At this point, an interesting event occurred. On November 1, right before the elections, the employment data released for October was shocking, only one-tenth of the market expectation. Additionally, the non-farm employment data for August and September was revised downward again. Everyone looked at the worsening employment data, so November's rate cut became more stable. Now, let's return to the main topic.

How to analyze the future rhythm of rate cuts using tools?

Besides economic data, what other methods can be used to analyze the Federal Reserve's interest rate cut plans? How long will the entire process last? We can use some tools to predict the pace and duration of future rate cuts.

1. Dot Plot

First, the Federal Reserve officially releases a dot plot every quarter that records members' views on future interest rate trends. To speculate on the target and duration of this round of rate cuts, we need to take a look at this chart.

This chart is the dot plot from September 2024, where each point represents the view of an FOMC member. Generally, we look at which Range the median falls into. There are a total of 19 members here, with the median being the 10th point when counted.

According to this dot plot, it is possible that the rate cuts will continue in 2024, reaching 4.25% to 4.5%. The rate cut cycle may last until 2025, and at the latest by 2026, the Federal Reserve will lower the interest rate to the target value.

However, everyone should pay attention that each quarter, the Federal Reserve will release a new chart, and the data may change. You can also analyze the Federal Reserve's attitude and tendencies based on the latest chart.

Generally, to view the Federal Reserve's dot plot, one needs to go to its official website. Now the latest dot plot can also be seen through the Futubull app, located in 'Market', under 'Selected Macroeconomic Data'. Long-pressing the chart will also show specific data, which is very convenient.

2. FedWatch (Probability of Rate Cuts)

Everyone can also use the CME's FedWatch tool to see how investors in the market are predicting. This tool can also be accessed in the Futubull app.

Click on 'Market' in the navigation bar, scroll down the page to find 'Selected Macroeconomic Data', click in, and find 'Federal Reserve FedWatch Rate Cut Probability'.

Look at the 'Published Data' here, which refers to the market's current estimation of the probability of a rate cut at the next monetary policy meeting. At the same time, it's important to note that the above tools are only predictions, and there may be differences from the actual rate cut. Additionally, these prediction values can change; for example, the dot plot may change every quarter, and FedWatch may change daily. Of course, the direction of change can also reveal certain trends to some extent.

Alright, this video ends here. If you enjoy this type of video content, feel free to leave us a message, thank you for watching.