Federal Reserve officials have indicated they may continue to cut interest rates, with investors still expecting them to do so at the December 17-18 meeting, but how much they will cut rates afterward remains a pending question.

The upcoming minutes of the Federal Reserve meeting are expected to show the beginning of a debate that will shape the financial landscape facing the incoming Trump administration.

The minutes will detail the situation at the Federal Reserve's interest rate meeting held on November 6-7, during which officials struggled to address stronger-than-expected economic growth and higher-than-expected inflation. Despite a slowdown in non-farm payroll growth in October, policymakers believe the U.S. economy continues to outperform expectations.

Federal Reserve Chairman Powell, in a press conference held after lowering the benchmark interest rate by 25 basis points to the range of 4.50%-4.75% on November 7, stated, "The performance of the U.S. economy is actually remarkable, with strong growth, a strong labor market, and decreasing inflation."

Powell mentioned the Fed's plan to make monetary policy less restrictive, aiming for a more neutral stance, neither stimulating nor inhibiting economic activity, when he said, "We are moving towards a more neutral stance... We can only see where the data will lead us... I have not ruled out the possibility of (rate cut in December), but I have not confirmed it either."

Public comments since the meeting show wide disagreements among Federal Reserve officials: some officials believe rates may be close to neutral levels, leading the Fed to approach a pause in rate cuts, while others expect the rate-cutting cycle to be longer.

A week after the interest rate meeting, Powell stated that the economy "has not given any signals that require us to hurry to cut rates," and the Fed can "cautiously" decide whether to further lower borrowing costs. His comments have led to a steady decline in market expectations for a rate cut by the Fed next month.

The Trump effect.

While officials like USA Federal Reserve Board Governor Cook are focused on what she believes will be a steady easing of inflation and the potential increase in productivity, others say they still see inflation risks as crucial.

USA Federal Reserve Board Director Bauman said at an event in Florida last week, "Since the beginning of 2023, we have made significant progress in reducing inflation, but progress seems to have stalled in recent months," adding, the Federal Reserve "may be closer to a neutral policy stance than we currently think."

If so, it could mean a reduction in the overall number of interest rate cuts by the USA Federal Reserve, as many investors and economists have become more aware of this possibility since Republican former President Trump's campaign declaration to cut taxes, restrict immigration, and increase import tariffs when he won the presidential election on November 5.

The impact of these policies, including possible exacerbations of inflation and wage pressures, could also lead the USA Federal Reserve to take a more cautious approach towards excessive and fast rate cuts. Investors now expect the benchmark interest rate of the USA Federal Reserve to only fall to around 3.9% next year, without further decline, which is one percentage point higher than the policymakers' forecast level in September.

Editor/Rocky