The Federal Reserve's Steady Performance in 2024, Inflation and Policy Prospects in 2025 Attract Attention
Successful Soft Landing, Inflation Remains a Core Challenge
In 2024, the Federal Reserve successfully achieved a soft landing for the economy. By maintaining relatively high interest rates, it managed to curb inflation while avoiding a recession. Although the unemployment rate increased, it did not spiral out of control, showing remarkable economic resilience. However, even though inflation has eased from its 2022 peak, it has not yet reached the Fed's 2% target and has shown a stagnation trend in recent months. Chairman Powell has clearly stated that the pace of interest rate cuts will remain cautious until further improvement in inflation is seen.
Slower Rate Cuts, Internal Disagreements
This year, the Federal Reserve executed three rate cuts, including a significant cut by 50 basis points, which sparked internal controversy. At the December press conference, Powell noted that achieving the inflation target is expected to be delayed until 2027, indicating that the future pace of rate cuts may slow even further. Some officials have even suggested pausing rate cuts or considering a potential rate hike again in 2025.
For instance, Cleveland Fed President Loretta Mester opposed the December rate cut decision, arguing that the economy's current strong performance does not require further monetary easing. She expressed concerns over the need for more evidence that inflation is returning to target levels and warned against the risks of sending incorrect signals by cutting rates too quickly.
Trump Policies Increase Uncertainty
At the beginning of 2025, the Trump administration will return to the White House, and its trade, tax cut, and immigration policies could have significant impacts on the economy and inflation. Some Fed officials have started incorporating the potential impacts of these policies into economic forecasts, but the policy directions remain unclear, which could complicate the Fed's monetary policy decisions.
San Francisco Fed President Mary Daly stated that the Fed is adapting to the new economic environment by recalibrating its policies, but future adjustments will need to rely on actual data. She also did not rule out the possibility of interest rate increases in 2025, emphasizing that maintaining flexibility is crucial to managing uncertainties.
Inflation Target Distant, Policy Prospects Challenging
Despite significant achievements in 2024, reaching the Fed's inflation target remains a long-term challenge. With Trump’s policies advancing and global economic uncertainty intensifying, the Federal Reserve needs to fine-tune its balance between curbing inflation and promoting economic growth. Powell warned, "When the path is unclear, slowing down is a commonsense approach."
In 2025, the Federal Reserve will face greater external pressures and internal divisions, and achieving the dual goals of price stability and economic growth in policy adjustments will be its greatest test.
