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Federal Reserve Expected to Hold Rates Steady Despite Trump's Push for Cuts

Anyone thinking the Federal Reserve would cut the federal funds rate during this week's meeting shouldn't hold their breath. That means President Donald Trump is likely to be disappointed as he pushes for immediate rate cuts.

In fact, an increasing number of Wall Street analysts are saying that rate hikes are unlikely in the cards, as Fortune reported.

Thanos Papasavvas, founder and chief investment officer at ABP Invest, recently wrote in a Financial Times op-ed that markets have priced in two cuts rather than four in 2025, with only a 25% probability of a cut in March.

“We don’t believe the Fed will cut rates in 2025 — we don’t even believe the Fed is done,” Papasavvas wrote. “Instead, we expect the resilient US economy and Trump’s polices to push inflationary expectations higher and force Fed chair Jay Powell to increase rates from September onwards.” They base the expectation on a U.S. economy in expansion mode since August.

He further wrote that Trump’s policies — tax cuts, tariffs, deregulation, and undocumented worker deportations — are all potentially inflationary. And if inflation does seem to rise, the issue of credibility will push the Fed into taking faster action by first hawkish rhetoric and potentially taking more restrictive action.

Separately, the Financial Times quoted Dan Ivascyn, the chief investment officer of $2 trillion asset manager Pimco, as saying he thought the Fed would freeze rates until there was “more clarity either on the data front or the policy front”.

When the Fed cut rates in the 4.25%–to–4.50% range during its December meeting, the central bank attracted criticism for its move. “I don’t believe they should have cut rates,” David Scherer, co-chief executive of Origin Investments, wrote in prepared remarks at the time. “The Fed should hold off until there is data that specifically calls for a cut.”

The central bank didn’t then but began to lay out internal projections suggesting that an ongoing string of rate cuts wasn’t necessarily in the cards.

As the January meeting of the Federal Open Market Committee approaches, markets and some Wall Street powerhouses are saying that hopes for a cut now, at least, are unlikely to be fulfilled.

CME Group’s Fed Watch site, which looks at futures markets, pins the chance of zero change at the January 29, 2025, meeting at 97.33%, as of Monday evening. The further out the date, the more uncertain the results tend to be, but even a month ago the expected probability of remaining in the 4.25%–to–4.50% range was 89.31%. This isn’t a sudden change of sentiment, although there is currently a projected 76.8% possibility of a cut in the June 18, 2025, meeting.

Reprinted with permission from the Tuesday, 28 January 2025 07:16:57 EST online edition of GlobeSt © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.