Fed rate-cut odds drop to 5% for January
Fed likely to pause rate cuts as December inflation holds at 2.7%, signaling cautious outlook
Stubborn inflation of 2.7% in December makes an interest rate cut unlikely, with the Fed signaling caution amid economic shifts.
Key Takeaways
- High Inflation Persists: December inflation remained elevated at 2.7%, reducing the likelihood of a rate cut this month.
- Rate Cut Probabilities: Barchart data suggests a 95% chance the Fed will maintain current rates and only a 5% chance of a cut.
- Cautious Approach: Fed Chair Jerome Powell emphasized measured decisions, highlighting a new phase of economic adjustments as Trump prepares to take office.
- Inflation Trends: Inflation fell from 5.5% in 2022 to 2.8% in October 2024, but recent stagnation has prompted caution about further easing.
Fed likely to pause rate cuts amid inflation concerns
The Federal Reserve is expected to keep interest rates unchanged during its upcoming meeting, citing persistent inflation. December’s inflation rate of 2.7% has tempered expectations for continued easing after three consecutive cuts in late 2024.
Fed Chair Jerome Powell hinted at caution during December’s 25 bps rate cut announcement, emphasizing that policymakers are entering a new phase. Rates now sit at 4.25%–4.5%, a level Powell described as “a good place” for the economy.
Fed rate-cut chances. Source: Bachart
Balancing inflation control with growth
Despite progress in taming inflation from 5.5% in 2022 to 2.8% in late 2024, Powell noted recent stagnation. Rising shelter costs remain a concern, reinforcing the need for a slower pace of adjustments.
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Barchart data supports this outlook, giving a 95% probability of holding rates steady this month. Powell also acknowledged that future policy changes will depend on inflation trends and economic developments under the incoming Trump administration.
Market expectations and caution moving forward
While the market anticipates stability, Powell stressed the importance of balancing inflation control with economic growth. Analysts warn that overly aggressive cuts could fuel inflation, while holding rates too high may slow recovery.
Recently we wrote, that Robert Kiyosaki, the renowned financial author, has made a bold statement regarding the current financial environment.
