As we approach the final monetary policy meeting of the year by the Federal Reserve, internal divisions are surfacing regarding the future trajectory of interest rate cutsAnalysts are speculating that the Fed could be nearing the end of its easing cycle, with expectations that there will be no further cuts from the second half of next year onwards.

Nick Timiraos, often referred to as the "new Fed whisperer," highlighted in a recent publication that there is a lack of consensus within the Fed about whether to proceed with further cutsChairman Jerome Powell is apparently facing increased skepticism from fellow policymakers who are hesitant about the prospect of decreasing ratesThis shift in sentiment among Fed officials has significant implications for the wider economy and financial markets.

This week, experts believe that it is highly likely the Fed will announce another rate cut, marking the third consecutive reduction since September

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The rationale behind what some refer to as a "triple cut" stems from the comparatively high interest rate levels established earlier, allowing the Fed more leeway to enact reductionsHowever, if the U.Seconomy continues on a stable growth path into the next year, the justification for further cuts may diminish substantially.

Timiraos also noted that the tone of the Fed's officials has been markedly cautious in their communications with the market around interest rate discussionsThis is a critical development, as it reflects a shift in the Fed's posture in light of economic conditions and inflationary pressures.

In a final public address before entering a period of silence regarding policy deliberations, Powell emphasized the stronger-than-anticipated performance of the U.Seconomy this year, suggesting that the resilience observed exceeds previous forecasts"The economy is performing significantly stronger than we anticipated in September, even though inflation levels are slightly higher than expected," Powell remarked

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This comment suggests an increasing awareness of the challenges posed by inflation while navigating economic growth.

At the beginning of December, Federal Reserve board member Christopher Waller expressed his inclination to support a rate cut in December, assuming no unexpected alterations in economic dataHowever, he also cautioned that the progress towards the 2% inflation target might encounter difficulties, especially considering the current policies may not sufficiently curb rising prices in the services sectorConcerns regarding inflation have also been echoed by John Williams, President of the New York Federal Reserve, who recently articulated similar worries.

The consumer price index data released last Wednesday by the Bureau of Labor Statistics indicated an increase in both year-over-year and month-over-month inflation for November, with core CPI figures holding steady

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Analysts largely view this as an indication that while inflation remains sticky, the strong expectation for rate cuts in December remains intact.

As the Federal Reserve convenes for its two-day policy meeting, which will conclude in the early hours of Thursday morning, market predictions are crucialAs of around 11:40 AM on Wednesday, the probability of a 25-basis-point cut this month stood at an impressive 95.4%, a notable increase of 6.5 percentage points from the previous week.

Timiraos proposes that given the rising divisions within the Fed, the path of least resistance for Powell may involve proceeding with a rate cut this week while signaling a slowdown in the pace of future cutsFor instance, the Fed’s dot plot released after the September meeting suggested four cuts for the next year; however, the updated forecasts released in December may indicate a reduction in the expected number of cuts for 2025 by one to two times.

Currently, it seems that a majority of economists and analysts have revised their expectations regarding the number of rate cuts from the Fed in the coming year

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Loretta Mester, former president of the Cleveland Fed, shared her views with Yahoo Finance on Wednesday, stressing the need for the Federal Open Market Committee to reassess its earlier prediction of four cuts next year"For me, two to three cuts in 2025 appears to be the more accurate choice," she stated.

Deutsche Asset Management also released a report suggesting expectations for the Fed to implement three cuts by the end of 2025, including December's potential decrease, which marks a deduction of two cuts from its previous forecastsChristian Sherman, the firm’s chief U.Seconomist, pointed out that the economic data coming out of the U.Shas been mixed; while the labor market has shown signs of weakening, inflation continues to remain stubbornly highFuture fiscal and trade policies are still major unknowns, making any predictions tentative at best.

He anticipates the Fed might opt for a quarterly cut in the first half of 2025, followed by no further reductions in the latter half of the year