Major banks, including Citi, Goldman Sachs, and JPMorgan, forecast that the Federal Reserve will reduce its benchmark interest rate by 25 basis points this week. This adjustment would bring the federal funds rate to a target range of 4.25%-4.50%, marking a continuation of the easing cycle initiated earlier this year.

Key Takeaways:

1. Rationale for the Cut:

   • Inflation Trends: Inflation has steadily moderated, giving the Fed room to ease policy without reigniting price pressures.
   • Economic Resilience: Recent data suggests a soft landing scenario is plausible, with robust consumer spending and resilient labor markets.

2. Outlook for 2025:

   • Analysts suggest the pace of rate cuts is likely to slow in 2025.
   • Policymakers may adopt a wait-and-see approach to assess the long-term impact of rate reductions.

3. Market Reactions:

   • Bond Yields: Treasury yields have priced in the anticipated cut, reflecting confidence in the Fed's ability to manage economic risks.
   • Equities: Stock markets are cautiously optimistic, with investors awaiting confirmation of the Fed's dovish stance.

This potential move aligns with the Fed's dual mandate of fostering maximum employment and stable prices, emphasizing gradualism in monetary policy.

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