‘Long overdue’: Will there be an interest rate cut in 2025?

The US Federal Reserve continues to slash interest rates this week, leaving Australians wondering when they may expect to see a similar reduction in cost of living pressures and mortgage repayments.

On Thursday, the Federal Reserve reduced the interest rate by 0.25 percent, from 4.5 to 4.25 percent.

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The United States began decreasing interest rates in September, with a 0.5% decrease, followed by another 0.25 percent cut in November.

In a statement, the Federal Open Market Committee, which handles major interest rate decisions in the United States, said economic activity has expanded while unemployment has remained low.

However, the committee also said that it will “continue to monitor the implications of incoming information for the economic outlook,” indicating a cautious approach to future interest rate cuts in 2025.

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Meanwhile, Australians are looking for interest rate decreases to alleviate the cost of living concerns.

Earlier in December, the Reserve Bank of Australia (RBA) maintained the official cash rate at 4.35 percent after its year-end board meeting. The rate has been unchanged since November of last year.

The Australia Institute, an independent research tank, criticized the December decision, claiming that a reduction was “long overdue”.

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The institute’s head economist, Greg Jericho, urged the board to return sooner than expected in January and lower the interest rate, which has been unchanged for more than a year.

“Economic management is a full-time job yet the RBA is taking a two-month summer holiday,” he pointed out.

“(Reserve Bank Governor) Michele Bullock and (Treasurer) Jim Chalmers keep telling us they’re ‘fine-tuning’ the economy.” That cannot be done with the whole RBA board there at the cricket.”

Approximately 35,600 jobs were added to the economy, above market expectations of 25,000 employment gains.

“In November, we saw a higher than usual number of people moving into employment who were unemployed and waiting to start work in October,” ABS head of labor statistics David Taylor said Thursday.

“This contributed to the rise in employment and fall in unemployment.”

RBA Governor Michele Bullock has mentioned the sustained strength in the labour market as a reason why Australia has lagged behind similar countries in starting its monetary easing cycle.

Dr Gareth Bryant, a political economist at the University of Sydney, told SBS News that central banks throughout the globe, including the RBA, have grown more reliant on data in the face of increased unpredictability since COVID.

While the unemployment results seemed to signal a lower possibility of a rate decrease in February, the ABS had also reported somewhat poor Gross Domestic Product (GDP) data a few weeks previously.

“We’ve had data points over the last month or two that have pointed in different directions,” Bryant said.

“There isn’t a lot of confidence regarding our current economic condition, therefore expectations are wildly fluctuating. When you add it all together, I believe the odds of a February interest rate drop are around 50-50.”

While Bryant believes an interest rate drop by May is more probable, the decision might be greatly influenced by the next inflation or unemployment report.

Bryant said that Australians might anticipate interest rate easing early next year, depending on current economic circumstances and inflationary trends.

However, he warned that unanticipated economic shocks or occurrences might sway this choice.

“The key question is whether they’ll be able to do that in a way that avoids the potential economic risks mounting up in terms of impacts of leaving interest rates too high on economic growth and the labour market,” he told me.

“That’s the big risk they’re managing at the moment and the timing of that interest rate cut is going to be really important.”