Nomura no longer expects the Federal Reserve to cut interest rates during its next meeting, December 17 and 18. It’s the first global brokerage to say that a pause is coming according to a Reuters report.
Many economists, analysts, investors, and others continue to expect a series of interest rate cuts from the central bank. After all, why not? Inflation has largely been coming down, there’s still strength in labor markets, and GDP continues to expand at a respectful pace.
However, the Nomura call suggests a growing reassessment among some experts, including warnings from the Fed itself. If the change in appraisal turns out to be right, that could upset many development and investment strategies in CRE.
The firm expects only two 25 basis point rate cuts in the March and June 2025 meetings. Currently, the federal funds rate is in the 4.50%-to-4.75% range.
Nomura, in a note from Friday, as quoted by Reuters, said, “We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause.”
The Fed did cut another quarter-point after the election, but the future shift in administrations has created uncertainties. On one hand, a Trepp analysis has pointed out that cuts to the federal funds rate could pump life back into CRE transaction volumes. But it will take time.
Then again, some have concerns that the combination of Trump’s tax and tariff policies could drive costs of business and inflation up. "I would expect Trump's election to be a bad thing for those who are rooting for interest rate cuts," Jon Siegel, co-founder and chief investment officer for Railfield Partners, told GlobeSt.com after the election. "Powell says that their decisions are data-driven and so I would expect them to continue on their current path of easing rates in the short term, but Trump's proposed policies could drive more inflation and so I would expect the Fed to be more hawkish on rates in the long run."
Other brokerages and banks haven’t yet pulled back on their previous estimates of future rate cuts, but their certainty has pared back. J.P.Morgan Asset Management wrote on November 7 after the election, “Progress on disinflation and recent employment data supported the decision to move toward a more neutral policy stance, although possible robust incoming economic data or fiscal policy shifts could decelerate the pace of future cuts.”
They added, “Looking ahead to December, Powell also commented that now is not an appropriate time for forward guidance given the high level of uncertainty. Markets are pricing in a 68% probability of a rate cut in December, although forthcoming inflation and labor market data will be the key determinants.”
That would have made a 32% projected probability of no rate cut. As of November 19, expectations the Fed might not cut rates in the December meeting rose to 40.9%, from 34.7% on November 18.