Most economists anticipate that the U.S. Federal Reserve will cut interest rates by 25 basis points in December 2024, bringing the fed funds rate down to a range of 4.25% to 4.50%.

Despite the expected cut in December, economists foresee shallower rate reductions in 2025, primarily due to inflation concerns linked to President-elect Donald Trump's proposed economic policies.

Looking ahead, economists predict the Fed will cut rates by another 25 basis points in the first three quarters of 2025, resulting in a fed funds rate of 3.50% to 3.75% by the end of that year.

Fed Chair Jerome Powell has indicated that the current economic conditions, characterized by strength and high inflation, do not necessitate immediate rate cuts.

Market expectations for a December rate cut have shifted, with less than a 60% probability now reflecting the economy's resilience and ongoing inflation.

The inflation outlook has been revised upwards, with personal consumption expenditures (PCE) inflation expected to remain above the Fed's 2% target until at least 2027.

A significant majority of economists, about 85%, believe that the risk of inflation rising next year has increased, particularly due to the tariffs proposed by Trump.

Most economists expect that these tariffs will be implemented early in 2025, predicting a substantial impact on the U.S. economy.

Analysts warn that tariffs on imports, especially from China, could exacerbate inflationary pressures and potentially slow Chinese economic growth by up to 1 percentage point next year.

The U.S. economy is projected to grow at an annualized rate of 2.8% in the last quarter of 2024, with overall growth estimates at 2.7% for the year, and 2% for both 2025 and 2026.

In light of these economic conditions, Bank of America has raised its forecast for the Fed's terminal fed funds rate to a range of 3.75% to 4.00%, up from a previous estimate of 3.00% to 3.25%.