Low Probability of Fed Rate Cut in January; Market Expects Limited Scope for Future Policy Adjustments
According to the latest CME “Fed Watch” data, the probability of the Federal Reserve maintaining interest rates unchanged in January 2025 is 88.8%, while the probability of a 25 basis point rate cut is only 11.2%, remaining stable compared to the previous trading day’s expectations. This indicates that the market generally believes the Fed will not change the current interest rate policy in the short term, and future policy adjustments may be slow.
March Policy Expectations Show Divergence
Looking ahead to March 2025, the probability of the Fed maintaining the current interest rate level is 49.7%, while the market expects a 25 basis point cumulative rate cut at 45.3%, and a 50 basis point cumulative rate cut at 4.9%. Although expectations for rate cuts are gradually accumulating, the Fed’s policy path is still constrained by multiple factors including inflation levels, employment market conditions, and uncertainties in the global economic environment.
What Factors Influence the Possibility of a Rate Cut?
Analysts point out that the likelihood of future rate cuts will mainly depend on the following factors:
- Changes in Inflation Levels: Although inflation has fallen in 2024, it remains above the Fed's 2% target level, which may limit the scope for rate cuts in the short term.
- Economic Growth Outlook: The U.S. economy remains robust at the beginning of 2025, but geopolitical, trade policy, and market environment factors might cause a slowdown in the latter half of the year.
- Global Policy Environment: The policy direction of major central banks, including the European Central Bank, may also influence Fed decisions, particularly regarding monetary policy coordination.
Cautious Market Attitude
Current data suggests the market holds a cautious attitude toward the possibility of significant short-term policy adjustments by the Fed. This reflects investor confidence in the economic fundamentals and recognition of the Fed's "data-driven" decision-making approach.
Future Outlook
Although the probability of a rate cut in January is low, market expectations for policy adjustments throughout 2025 will continue to evolve. Investors need to closely monitor policy signals from future Federal Reserve meetings, especially as inflation pressures ease and economic growth slows, when the Fed may reassess the necessity and pace of rate cuts.
Overall, the current stability of Fed policy helps maintain market confidence, but the future policy path will still need to adjust based on dynamic economic data changes.
