Deutsche Bank sees a 25bp cut in December but says it’s ‘a close call’

Investing.com — The Federal Reserve will likely implement a 25 basis point (bp) rate cut in December, but the decision remains a “close call,” Deutsche Bank (ETR:DBKGn) strategists said, citing recent comments by Federal Reserve officials.

While the Fed may lean toward cutting rates, the data-dependent nature of the central bank’s approach keeps the possibility of a pause firmly in play.

Federal Reserve Bank of Boston President Susan Collins recently remarked that a rate cut in December is “certainly on the table” but “not a done deal,” emphasizing the need for more economic data before making a definitive move.

Other Fed officials have also shared cautious comments, pointing to the risk of inflation surprises or labor market adjustments.

Core inflation has moderated but remains above target levels, with October’s core PCE index showing a 2.8% year-on-year increase.

Fed Chair Jerome Powell recently said the bank “will go slower if data permits,” while stressing the need for “more certainty to alter policy.”

“Most officials’ comments leaned at least slightly hawkish, suggesting that December meeting is a close call between cutting and skipping,” Deutsche Bank said in a note.

Powell said that financial conditions have eased, and the labor market, while cooling, remains resilient. However, uncertainties tied to fiscal policies and inflation trends complicate the outlook.

Deutsche strategists anticipate that the Fed may aim to maintain rates above 4% well into 2025, reflecting a potentially higher neutral rate in the range of 3.75%-4%.

Austan D. Goolsbee, president of the Fed Bank of Chicago, believes rates will be “a lot lower” over the following 12 to 18 months, “as long as inflation is moving towards 2%.”