The Fed is predicted to reduce interest rates once more on Thursday. Here's a comprehensive guide.

• The Federal Reserve is expected to focus on its current agenda and make another interest rate reduction during its meeting on Thursday.
• What Chair Jerome Powell says about the future is likely to attract market attention.
• Powell is likely to refrain from making direct comments about what to expect from President-elect Trump, in line with policymakers' tradition of staying above the political fray.

The Federal Reserve is likely to focus on its current business when it concludes its meeting on Thursday with another interest rate reduction. However, it will also keep an eye on the future amid a more complex backdrop.

The Federal Open Market Committee of the central bank is expected to decrease its benchmark borrowing rate by a quarter percentage point in an effort to adjust its policy as the inflation rate decreases and the labor market weakens.

As Chair Jerome Powell and his Fed colleagues navigate a shifting economy, they will also face the political earthquake of Donald Trump's stunning victory in the presidential race.

Krishna Guha, head of global policy and central bank strategy at Evercore ISI, predicted that Powell would remain cautious and avoid making any early judgments on the election's implications for the economy and rates, and would strive to maintain stability and calm.

Powell will initially state that the Fed will take its time to evaluate the new administration's plans, but will later refine this assessment as concrete policies are implemented, according to Guha.

The immediate action will be to implement a 25 basis point cut, but the market will focus on the committee and Powell's future statements regarding the fed funds rate, which influences consumer debt and is currently set between 4.75%-5.0%.

Another quarter-point cut in December is currently being favored by market pricing, followed by a pause in January, with multiple reductions expected through 2025.

Preparing for Trump

If Trump's agenda of tax cuts, increased spending, and aggressive tariffs is implemented, it could affect the Fed's efforts to adjust policy after raising interest rates to control inflation. Some economists predict that another round of isolationist economic actions from the president-elect could cause inflation to rise again, despite a similar approach during his first term.

During his presidency from 2017-21, Trump frequently criticized Powell and the Fed, and supported low interest rates.

"According to Quincy Krosby, chief global strategist at LPL Financial, everyone is looking for indications of future interest rate cuts and whether anything is being signaled. Additionally, there is a question about whether they can claim victory over inflation."

Powell's post-meeting news conference will provide answers to any questions about the rewritten sentence.

The committee will not provide an update on its Summary of Economic Projections, which includes consensus updates on inflation, GDP growth, and unemployment, as well as the anonymous "dot plot" of individual officials' interest rate expectations, although it will release its joint decision on rates.

The Fed's direction remains uncertain beyond the January pause, with the SEP update occurring in December.

"The terminal rate will become more frequently mentioned if yields continue to rise, and it is not solely linked to growth, according to Krosby."

So where's the end?

In the fed funds futures market, traders are predicting that by the end of 2025, the benchmark rate will be within a range of 3.75%-4.0%, which is a full percentage point lower than the current level following September's half percentage point cut. Meanwhile, the Secured Overnight Financing Rate for banks is indicating a short-term rate of around 4.2% at the end of next year.

"What is the endpoint of this rate cut cycle? asked Bill English, the former head of monetary affairs at the Fed and now a finance professor at the Yale School of Management. "Soon, they must consider where to end this rate cut period as the economy looks strong. They may pause soon and observe how things progress.""

Powell may be called upon to discuss the Fed's current actions to decrease its bond holdings.

The Fed has reduced its holdings in Treasurys and mortgage-backed securities by nearly $2 trillion since June 2022. Fed officials have stated that the balance sheet reduction can continue even while they cut rates, but Wall Street anticipates the run-off to end as early as 2025.

"They've been content to let the issue simmer in the background, but there will be significant attention given to it in the upcoming meetings. When will they decide to modify the speed of the runoffs?"