Some economists stated on Wednesday that the Fed's rate-cutting cycle has ended, while others believe the Fed will not relax policy again until 2026.
Following the latest policy meeting, Fed officials stabilized the interest rate in the range of 4.25%-4.5%. In December last year, the median forecast of the Fed's 'dot plot' indicated two rate cuts in 2025, each by 25 basis points.
When asked about the Fed's plans at a press conference, Powell said, 'No rush.' He added that the Fed wants to see further progress in inflation or the labor market before cutting rates further.
Economists predicting that the Fed has ended its rate cuts believe that the two conditions for rate cuts proposed by Powell will not be met.
Steven Blitz, Chief U.S. Economist at GlobalData TS Lombard, believes that the Fed will not continue to cut rates in 2025.
Blitz stated that he expects the annual growth rate of the U.S. economy to be 3% this year, well above the 'trend' growth rate of 2%. He said stronger demand will ultimately push up inflation.
James Egelhoff, Chief U.S. Economist at BNP Paribas, stated that due to tariff increases, tighter immigration policies, and ongoing expansionary fiscal policies, inflation will rise in 2025. He added that a slight increase in long-term inflation expectations is also one of the reasons.
We are pleased with our long-standing call that the FOMC will keep rates unchanged until mid-2026, said Egelhoff.
Aditya Bhave, U.S. Economist at Bank of America Global Research, also stated that he believes the Fed's rate-cutting cycle has ended.
The fact that a March rate cut does not seem to be Powell's baseline expectation supports our view, said Bhave. He stated that not cutting rates in March means no cuts in the first quarter, as the Fed rarely acts at a pace slower than quarterly rate cuts.
Matthew Luzzetti, Chief U.S. Economist at Deutsche Bank, stated that the Fed is not far from its target neutral policy rate, which he estimates to be around 3.75%.
He said the Fed needs to keep rates slightly above that level this year, so further rate cuts may not happen.
Activity in the derivatives market indicates that traders still expect the Fed to cut rates this year—25 basis points in June, followed by another cut in the fall.
But could the next step be a rate hike?
Blitz believes that the market will begin to price in rate hike expectations in 2026.
Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, stated that if inflation accelerates again, the possibility of rate hikes cannot be ruled out, and Trump's tariff threats could lead the Fed to completely reverse its policy in the short term.
It is certain that many economists believe the Fed has largely solved the inflation problem and is about to cut rates further. However, overall, there is a sense of uncertainty.
Diane Swonk, Chief Economist at KPMG U.S., described the Fed's policy as 'a policy hell.'
Given the uncertainty of the new government agenda, the Fed does not know what will happen next, she said.
Article reposted from: Jin Shi Data