Fed interest rate cut prediction, as the Federal Reserve continues to navigate the complexities of the U.S. economy, predictions regarding interest rate cuts have become a focal point for investors, analysts, and policymakers alike.
Since inflation surged in 2021, the Federal Reserve has been working diligently to bring the inflation rate back to its 2% target. To combat an overheating economy, the Fed raised policy rates by 5.25 percentage points in 2022 and 2023. As inflation began to slow, the Fed initiated rate cuts, lowering rates by 100 basis points since last September.
In its January meeting, the Fed paused further rate cuts, leaving the timing and possibility of future reductions uncertain. This hesitance comes as markets await developments surrounding Trump’s second administration, particularly regarding tariffs and immigration policies.
Inflation in the service sector has not yet returned to pre-pandemic levels. One economist suggests that reduced immigration and repatriation may limit labor supply, leading to wage increases in both services and goods sectors.
Daniel Doderer, economist and research director at Flack Global Metals, stated, “I believe the Fed is in a very good position to do nothing for now.” He emphasized that the market is shifting from a balanced labor supply-demand scenario to one that may face supply constraints while demand remains stable or even increases, suggesting that the Fed is unlikely to lower rates.
Doderer noted that with inflation still above the target level, economic growth is likely to remain robust, indicating “no need for rate cuts.” He mentioned, “There are no clear signs that current rates are particularly restrictive.” His internal expectation is that the Fed will not cut rates this year, although he sees a slightly higher chance of cuts compared to rate hikes.
The mere threat of tariffs can contribute to rising prices. Doderer explained that businesses, uncertain about future cost changes, may simply decide to raise prices when planning operations. Even without tariffs, prices face upward pressure. While commodity prices have been declining, housing inflation persists, and other service categories, such as airfare, have not decreased significantly. Doderer remarked, “We haven’t really seen the broader progress in services that we hoped for. Over time, it will become more difficult for inflation to slow, and commodity deflation will fade.”
Furthermore, renewed optimism in manufacturing activity could drive inflation in goods. “When you assess the risks, considering potential dynamics and how these inflation components might change in the coming months, it’s hard to see how the Fed can achieve a 2% inflation target this year,” Doderer stated.
Doderer plans to closely monitor the upcoming CPI and PPI data releases on Wednesday and Thursday for more insights into inflation trends. He anticipates that core CPI year-on-year growth will stay between 2.5% and 3% in the coming months.
As the impact of last year's price increases gradually fades, Doderer expects that “we won’t have a clear understanding of the actual inflation dynamics until around May.” Therefore, he believes the Fed will gain better insights into inflation trends by late summer.
When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
