Wall Street Recalibrates Fed Rate Cut Expectations for 2025
As economic indicators continue to show resilience, Wall Street is increasingly skeptical about the Federal Reserve’s potential interest rate cuts in 2025. The robust December jobs report has significantly impacted market sentiment, with some analysts even suggesting the possibility of a rate hike instead of cuts.
The U.S. economy added 256,000 jobs in December, surpassing expectations and causing the unemployment rate to decline unexpectedly. These strong economic indicators have reduced the perceived need for further monetary stimulus, prompting financial institutions to reassess their forecasts.
Bank of America has taken a bold stance, declaring the rate-cutting cycle over. The institution expresses concerns about inflation remaining above target, with potential upside risks looming on the horizon.
BNP Paribas maintains its forecast of no Fed rate cuts in 2025, citing potential inflationary pressures from tariffs and immigration policy changes. The bank draws comparisons to 1970s-style inflation entrenchment and acknowledges the Federal Open Market Committee’s recent hawkish pivot.
Deutsche Bank predicts an extended pause in rate cuts, forecasting rates to stay around 4.3% through 2025. The bank emphasizes sturdy growth, a resilient labor market, and sticky inflation as key factors influencing its outlook.
The possibility of rate hikes is not off the table, with BNP Paribas suggesting potential increases if economic conditions shift. This consideration underscores the risks associated with achieving a soft landing for the U.S. economy.
Market reactions reflect this growing skepticism about a full pause in rate changes. The CME FedWatch tool indicates a 30% chance of unchanged rates by year-end, while investors see a 41% chance of a 25-basis-point cut in the same period.
As the economic landscape continues to evolve, Wall Street’s expectations for Federal Reserve policy in 2025 remain in flux, with analysts closely monitoring incoming data for further clues on the central bank’s future moves.