The U.S. Federal Reserve is widely expected to deliver its third consecutive interest rate cut at its final meeting of the year on 18 December 2024, marking a significant shift in monetary policy following years of aggressive tightening.
Since March 2022, the Fed had been raising rates to combat surging inflation, which peaked at a 40-year high of 9.1%. Now, with inflation easing and economic uncertainties lingering, the Fed appears to be taking a more measured approach to rate adjustments. If the anticipated 0.25 percentage point cut materialises, the federal funds rate will settle within a range of 4.25%–4.5%, down from its current 4.5%–4.75% range. This follows earlier cuts in September (0.5 percentage points) and November (0.25 percentage points), reflecting the Fed’s gradual easing to balance economic growth and inflation concerns.
What’s Happening?
The December rate cut comes as the Fed navigates a delicate economic landscape. While inflation has moderated significantly from its pandemic-era highs, November’s Consumer Price Index (CPI) still rose by 2.7%, above the Fed’s long-term target of 2%. Meanwhile, U.S. unemployment has ticked up slightly, signalling underlying weakness in the labour market. For the Fed, these indicators justify a cautious approach: easing rates to support economic stability while keeping inflation in check. As LendingTree Senior Economist Jacob Channel notes, “The Fed will likely move ahead with another 25-basis point cut at its December meeting. But this could be the last cut for a while.”
How Does This Affect Singapore?
For Singaporeans, the Fed’s decision will have ripple effects on borrowing costs, savings, and investments. While local interest rates are influenced by domestic factors, global monetary trends—particularly those set by the Fed—play a critical role. Mortgage borrowers, especially those on floating-rate home loans pegged to the Singapore Overnight Rate Average (SORA), may see some relief as rates ease. However, fixed mortgage packages may remain elevated as local banks exercise caution amid economic uncertainty. Similarly, personal loans and credit lines could become slightly cheaper, providing opportunities for debt restructuring or refinancing.
That said, the immediate impact may feel incremental. Interest rate cuts typically translate to modest savings on loan repayments. Credit card APRs, for instance, have already edged down slightly in the U.S., and a similar trend may unfold in Singapore. However, mortgage rates remain more stubborn, influenced not just by the Fed’s policies but also by broader economic factors like U.S. Treasury bond yields and local housing demand. For homeowners and buyers, while borrowing costs may ease gradually, significant relief is unlikely in the short term, especially for those still tied up in their lock-in periods.
Looking Ahead
Looking ahead, the outlook for 2025 remains uncertain. While economists expect further rate cuts next year, the pace may slow amid heightened macroeconomic risks. President-elect Donald Trump’s proposed economic policies, including tariffs of 25% on Mexican imports and additional 10% on Chinese goods, could reignite inflation. Tariffs are effectively consumption taxes that increase costs for consumers, potentially undoing progress on price stability.
This uncertainty may prompt the Fed to pause rate cuts early next year to reassess inflation trends and economic performance. Goldman Sachs economists recently noted, “Fed officials might prefer to be cautious in light of uncertainty about the new administration’s policies, especially possible tariff increases.”
Key Takeaways
The Fed’s Summary of Economic Projections (SEP), due on 18 December, will shed light on its plans for 2025. Early forecasts suggest the Fed may pencil in three rate cuts of 0.25 percentage points each—down from four cuts predicted earlier in September. These projections will be closely watched as they set the tone for the year ahead.
Ultimately, for Singaporeans, the Fed’s anticipated rate cut signals cautious progress amid an evolving economic backdrop. While lower rates could gradually ease borrowing costs and improve affordability, particularly for loans and mortgages, the changes are likely to be modest. Inflation remains a global concern, and the Fed’s response in 2025 will hinge on economic uncertainties, including Trump’s proposed policies and labour market resilience.
As interest rates move into a phase of stabilisation, the focus will shift to navigating opportunities in a changing environment. For Singapore’s property market, strategic decision-making remains key. Borrowers and investors alike should remain attuned to global economic shifts and their local implications.
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