Barclays' latest research report indicates that the Federal Reserve released a hawkish signal after cutting interest rates by 25 basis points in December, suggesting that the pace of rate cuts will slow in 2025. The Fed's dot plot shows only two rate cuts in 2025 and two in 2026, while inflation expectations have been significantly raised.

Key Points:

1. The Federal Reserve made a significant upward adjustment to inflation expectations, raising the core PCE inflation forecast for 2025 from 2.2% in the September forecast to 2.5%, with a 0.2 percentage point increase for both 2024 and 2026. This reflects policymakers' concerns about increased tariffs and other inflationary policies.

2. The dot plot indicates that the median federal funds rate for 2025 is 3.9%, implying two 25 basis point cuts next year, with two more cuts expected in 2026. The long-term median rate has also been raised from 2.875% to 3.0%.

3. Barclays expects the Federal Reserve to implement only two rate cuts in 2025 (in March and June), primarily considering that core PCE inflation may rise again in the second half of 2025 due to increased import tariffs and tightened immigration restrictions.

4. Powell emphasized in the press conference that as the policy rate approaches a more neutral level, the Federal Reserve will be more cautious in considering further rate cuts, needing to see evidence of further improvement in inflation. This suggests that there may be a pause in rate cuts in January.