FOMC to keep rates unchanged, June and December 2025 may see a 25bps cut each: Report

New Delhi [India], January 29 (ANI): The Federal Open Market Committee (FOMC) of the US Federal Reserve is expected to keep interest rates unchanged in its policy announcement on Wednesday night (IST), according to a report by ICICI Bank.
The report suggested that the Fed is likely to maintain a neutral stance on its monetary policy outlook as it assesses the economic conditions in 2025.
It said "FOMC is expected to start 2025 by keeping rates unchanged while providing a neutral guidance on the outlook".
After cutting interest rates by a total of 100 basis points (bps) in 2024 to support economic activity, the Federal Reserve is now expected to start 2025 without making any further changes. The FOMC meeting began on January 28 and will conclude on January 29.
The report noted that the labour market has also improved, with steady hiring and a stable unemployment rate in the last quarter of 2024. Earlier concerns about a slowdown in job growth during the first half of 2024 have now eased. The FOMC may acknowledge these positive developments in its policy statement.
Although inflation has been slowing, the pace of disinflation remains gradual. Core inflation is still around 3 per cent, higher than the Fed's target of 2 per cent. The US economy continues to grow at a solid pace of about 2.5 per cent, which could justify keeping interest rates unchanged for now.
The report also suggested that the Fed could start cutting rates again in June 2025 with a 25 bps reduction, followed by another 25 bps cut in December.
It said "we see the FOMC cutting rates by 25bps in June and 25bps in December resulting in a cumulative 50bps easing over 2025 that will likely be followed by a further 50bps cut over 2026".
However, there is a possibility that the Fed may opt for a more gradual and delayed approach to easing monetary policy.
One of the major factors that could impact the Fed's future decisions is the potential expansion of fiscal policies, such as tax cuts, which may boost consumer spending and drive inflation higher. Additionally, restrictions on immigration could keep wages elevated, adding to inflationary pressures.
The report also draws comparisons to the Fed's response to the 2018 trade war, during which the central bank continued raising interest rates despite economic uncertainties. If similar trends emerge in 2025, the Fed might adopt a cautious approach, balancing economic growth with inflation risks.
Overall, the Fed's current stance suggests that while rate cuts are expected later in the year, policymakers are likely to proceed carefully to avoid triggering inflationary pressures. (ANI)