Crédit Mutuel AM: A pause in January, and maybe for longer

Crédit Mutuel AM: A pause in January, and maybe for longer

28 januari 2025

Rente Fed
Fed dollar (kreatikar, Pixabay)

After rate cuts amounting to 100 basis points (bps) in total since September 2024, it is widely expected that the US Federal Reserve (Fed) will keep interest rates unchanged at its first meeting of the year.

Here is what we expect:

  • The Federal Open Market Committee (FOMC) will likely keep its key rates between 4.25% and 4.50%, reflecting the current performance of the US economy and ongoing inflation, which remains above the 2% target.
  • Based on the minutes of the December FOMC meeting and comments from Governor Christopher Waller on January 16, Jerome Powell will likely maintain the possibility of rate cuts in 2025, as the Fed still anticipates inflation returning to the 2% target in the medium term.
  • However, Federal Reserve Chair Jerome Powell will probably clarify that the FOMC, which follows a "data-dependent" approach (especially regarding inflation and the labor market), is not committed to any specific timeline for future rate cuts. In the press conference, Powell might consider a rate cut in March, provided inflation data aligns with the Fed's expectations. Still, at this point, the likelihood of such a move seems low, given the current macroeconomic uncertainty and the uncertain path of the Trump administration’s economic policies. Alternatively, and even though rate cuts are on hold for now, the Fed will most likely rule out the possibility of an interest rate hike.
  • The FOMC is also expected to maintain quantitative tightening (QT), as Fed officials have expressed no intention of putting an end to QT at this meeting.

In summary, reflecting December FOMC projections, which showed fewer rate cuts for 2025, the January meeting will likely mark a pause in the easing cycle. We expect a moderately positive reaction from financial markets, given the Fed's optimistic outlook for potential rate cuts later in the year. The trajectory of US interest rates will become clearer during the March 18–19 meeting, when the Fed updates its Summary of Economic Projections (SEP), which will take into account the potential ripple effects of Trump’s economic policies.

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