According to the Zhitong Finance APP, since inflation surged in 2021, the Federal Reserve has been trying to bring inflation down to 2%. In response to high inflation, the Federal Reserve raised the policy interest rate by a total of 525 basis points in 2022 and 2023 to cool down the overheating economy. However, as inflation has shown signs of returning, the Federal Reserve has been able to relax policy restrictions, lowering the policy interest rate by 100 basis points since last September.
However, due to the resilience of the U.S. economy, the anti-inflation process has begun to slow down, and the Federal Reserve paused interest rate cuts in January. Federal Reserve officials also hope to have time to assess the impact of the new Trump administration's changes in trade, immigration, and tax policies. When or whether the Federal Reserve will resume interest rate cuts remains uncertain, especially as the market waits to see progress from the Trump administration on tariffs and immigration issues.
Daniel Doderer, economist and research director at U.S. steel distributor Flack Global Metals, pointed out that inflation in the U.S. service sector has not yet returned to pre-pandemic levels, and the reduction in the labor force due to the expulsion of illegal immigrants and decreased immigration in services and goods will lead to wage increases to fill job vacancies.
Daniel Doderer stated, &#34;I think the Federal Reserve is currently in a very favorable position to do nothing for the time being.&#34; &#34;We are moving from a labor market with ample supply and healthy demand to one with constrained supply, unchanged demand, and possibly higher demand.&#34; He added that this is not a good sign for interest rate cuts.
Daniel Doderer stated that since inflation is still above target and the potential for economic growth remains healthy, the Federal Reserve &#34;has no need to cut interest rates.&#34; He said, &#34;Therefore, our internal expectation is that the Federal Reserve will not cut interest rates this year. We believe the likelihood of the Federal Reserve cutting interest rates this year is only slightly higher than the likelihood of raising rates, as there are many upside risks to inflation.&#34;
The mere threat of tariffs can lead to price increases. Daniel Doderer stated that when businesses formulate their business plans, &#34;the easiest conclusion to draw&#34; is that when they are uncertain about how costs will change, they will raise prices.
Even without tariffs, there is still upward pressure on prices. Daniel Doderer pointed out that while commodity prices have been in a deflationary state, housing inflation has proven to be &#34;sticky,&#34; and other prices, such as airfare, have not declined. He stated, &#34;We have not really seen the broader anti-inflation progress in services that we hope to see.&#34; Additionally, renewed optimism about manufacturing activity may exacerbate inflation in commodities.
Inflation data and Powell's speech may provide clues about the Federal Reserve's interest rate path
The U.S. January CPI will be released on Wednesday. Wall Street economists expect the U.S. January CPI to rise 2.9% year-on-year, unchanged from the previous value; the core CPI, excluding food and energy prices, is expected to rise 3.1% year-on-year, down from the previous value of 3.2%.
The U.S. January PPI will also be released on Wednesday. Economists expect the U.S. January PPI to rise 3.2% year-on-year, down from the previous value of 3.3%; the core PPI is expected to rise 3.3% year-on-year, down from the previous value of 3.5%
At the same time, the U.S. retail sales data for January, known as the &#34;terrifying data,&#34; will be released on Friday. Economists expect U.S. retail sales in January to decline by 0.1% month-on-month, compared to a previous increase of 0.4%.
If the upcoming inflation data indicates that inflation remains sticky, or if the retail sales data shows that consumer support remains strong, it may further weaken market expectations for a rate cut by the Federal Reserve. Analysts say that previous signs of sticky U.S. inflation have intensified speculation that interest rates may remain unchanged in the coming months. The U.S. money market expects the Federal Reserve may cut rates in June or July, but pricing for rate cuts throughout the year has not yet reached two times. According to the CME Group's &#34;FedWatch,&#34; traders believe the Federal Reserve will only cut rates once this year.
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In addition, Federal Reserve Chairman Jerome Powell will attend hearings in the Senate and House on Tuesday and Wednesday, respectively, to testify on the semiannual monetary policy report and answer questions. Powell's remarks at the hearings may provide more clues about the Federal Reserve's interest rate path.
The market will closely monitor Powell's views on the economic outlook, inflation targets, and interest rate policy. Powell stated in January that the Federal Reserve is not in a hurry to cut rates further. Analysts expect Powell to emphasize that economic resilience is a key reason why the Federal Reserve is not rushing to cut rates further.
Currently, there is significant divergence among major Wall Street banks regarding the Federal Reserve's rate cut expectations for 2025. Morgan Stanley has joined Barclays and Macquarie in predicting that the Federal Reserve will only make one 25 basis point rate cut this year, citing uncertainty brought about by Trump's tariff policies. Goldman Sachs and Wells Fargo still expect the Federal Reserve to cut rates twice this year. Deutsche Bank, on the other hand, predicts that the Federal Reserve will not cut rates this year. Furthermore, Torsten Slok, Chief Economist at Apollo Global Management, anticipates that the Federal Reserve may raise rates as early as June

American economist Daniel Doderer stated that due to rising inflation risks, the Federal Reserve is unlikely to cut interest rates in 2023. Although the Federal Reserve has raised the policy interest rate by 525 basis points since inflation surged in 2021, Doderer believes that the Federal Reserve should maintain the status quo, as service sector inflation has not returned to pre-pandemic levels and changes in labor market supply and demand make the possibility of a rate cut lower than that of a rate hike

- Since inflation surged in 2021, the Federal Reserve has aimed to reduce it to 2%, raising interest rates by 525 basis points in 2022 and 2023.  
- With inflation showing signs of returning, the Fed has lowered rates by 100 basis points since September, but paused further cuts in January due to a resilient economy and uncertainty surrounding the new administration's policies.  
- Economists predict that inflation remains above target, and the Fed may not cut rates this year, with varying expectations among financial institutions regarding future rate changes.

Zhitong

Morgan Stanley

The risk of rising inflation in the United States remains, and economists expect the Federal Reserve will not cut interest rates this year