No Rate Cut Expected from Fed in January

The Federal Reserve (Fed) is expected to maintain interest rates at its meeting in January 2025. This decision is influenced by inflation still remaining above the 2% target and the Fed's cautious approach to controlling inflation before making further cuts. Although the Fed has observed a significant decline in high inflation levels, it prefers to avoid rapid interest rate reductions.

Experts anticipate further rate cuts within 2025. However, the Federal Open Market Committee (FOMC) may adopt a slower rate-cutting process, closely monitoring inflation and unemployment data. Currently, unemployment is not at a concerning level, and aggressive actions are not expected without seeing inflation approaching the 2% target. This cautious approach is leading markets to expect interest rates to remain stable in January.

Market expectations lean towards limited rate cuts. While markets do not anticipate a change in interest rates at the January meeting, they consider the possibility of the Fed initiating cuts in the coming months. However, these expectations are shaped by the Fed's priorities regarding price stability. Movements in inflation towards the 2% target will continue to be a decisive factor for the Fed's policy actions.

The Fed's cautious stance on long-term interest rate policy directly impacts the markets. Changes in economic indicators will determine the direction of future decisions by the FOMC.

Atlanta Fed President Bostic has called for caution. Bostic warned that Fed officials need to be more careful in fighting inflation. He stressed that despite the ongoing decline in inflation, the process is uneven, indicating that interest rates should remain high.

Speaking in a podcast recorded on December 9, Bostic projected that price pressures would decrease over time and inflation would gradually approach the 2% target. However, he noted that progress may occasionally stall or inflation could follow a more aggressive trajectory. Therefore, he emphasized that the Fed should not take premature steps without ensuring its price stability target.

Bostic's comments are seen as an indication that the Fed will continue to adopt a cautious stance in its fight against inflation. In the Fed's decision-making process, alongside measures to address the current inflation trend, maintaining sustainable price stability remains a priority.

In this context, the Fed's decision to keep interest rates stable at its January meeting is not expected to come as a surprise to the markets.