{"id":502214,"date":"2025-02-11T09:57:41","date_gmt":"2025-02-11T14:57:41","guid":{"rendered":"https:\/\/www.investmentexecutive.com\/?p=502214"},"modified":"2025-02-11T10:35:45","modified_gmt":"2025-02-11T15:35:45","slug":"odds-of-further-interest-rate-cuts-by-the-u-s-federal-reserve-have-dwindled","status":"publish","type":"post","link":"https:\/\/www.investmentexecutive.com\/news\/research-and-markets\/odds-of-further-interest-rate-cuts-by-the-u-s-federal-reserve-have-dwindled\/","title":{"rendered":"The Fed is prepared to keep its key rate unchanged for now: Powell"},"content":{"rendered":"<p>The Federal Reserve is prepared to keep its key interest rate unchanged for now as inflation remains elevated and the job market is solid, Chair Jerome Powell said Tuesday on the first day of a two-day appearance before Congress.<\/p>\n<p>After cutting its key rate a full percentage point in the final three months of last year, with \u201cthe economy remaining strong, we do not need to be in a hurry to adjust our policy stance,\u201d Powell said in written remarks to the Senate Banking Committee.<\/p>\n<p>Powell\u2019s appearance comes as inflation is still above the Fed\u2019s 2% target and the Trump administration is upending many long-time U.S. policies <a href=\"https:\/\/www.investmentexecutive.com\/news\/heres-the-latest-as-canada-faces-steel-and-aluminum-tariffs-from-the-united-states\/\">by imposing tariffs on steel and aluminum<\/a> and seeking to sharply cut government spending. President Donald Trump has also frequently attacked the Fed in the past, raising concerns about the Fed’s historic independence from politics.<\/p>\n<p>Powell did not mention those policy changes in his statement, but said that the Fed\u2019s interest rate is \u201cwell positioned to deal with the risks and uncertainties that we face.\u201d<\/p>\n<p><strong>THIS IS A BREAKING NEWS UPDATE. AP\u2019s earlier story follows below.<\/strong><\/p>\n<p>The odds of further interest rate cuts this year by the Federal Reserve dwindled last week as unemployment fell and more officials say they want to see how new policies from the White House affect the economy.<\/p>\n<p>While Fed officials pencilled in two rate cuts this year at their December meeting, economists and Wall Street investors are increasingly skeptical, with some predicting no reductions at all this year. On Friday, economists at Morgan Stanley said they now expect just one rate cut in 2025, and investors also expect just one \u2014 in July \u2014 according to pricing in futures markets.<\/p>\n<p>Fewer cuts could translate into a longer period of elevated mortgage rates and high costs to borrow money for everything from autos to credit cards. Still, mortgage rates are closely tied to the yield on the 10-year Treasury note, which can move independently of the Fed’s actions.<\/p>\n<p>The shifting expectations come as Chair Jerome Powell heads to Capitol Hill for two days of testimony this week, beginning Tuesday, before House and Senate committees that oversee the central bank and the financial industry. Fed chairs are required by law to appear before Congress twice a year.<\/p>\n<p>Members of Congress may urge that he cut rates more quickly. He will also likely be grilled about issues that are taking a higher profile under the Trump administration, such as crypto regulation, banking regulation, and allegations of \u201cde-banking.\u201d<\/p>\n<p>De-banking is the practice of banks shutting down customer accounts because they believe they pose financial, legal or reputational risks to the banks. Some crypto executives have charged that Biden administration regulators pressured financial firms to target their industry for de-banking.<\/p>\n<p>Regarding interest rates, Fed officials have suggested recently that after cutting their key rate three times at the end of last year \u2014 to about 4.3%, down from two-decade high of 5.3% \u2014 they are likely to be on hold for an extended period, though none will specify how long that might be.<\/p>\n<p>On Friday, Fed governor Adriana Kugler said that the labour market was \u201cstable\u201d and that \u201cgives us a little bit of time to make some decisions.\u201d She noted that inflation has “moved sideways” since the fall and is above their 2% target.<\/p>\n<p>She added that potential policy changes from the Trump administration have added uncertainty to their outlook for the economy. Economists have said that widespread tariffs, and the deportation of immigrants that Trump has also promised, could push up inflation. Others argue that Trump’s deregulatory policies could, by increasing supply, reduce prices.<\/p>\n<p>\u201cThe cautious and the prudent step is to hold the (Fed’s key) rate where it is for some time,\u201d Kugler said. “Given that the economy is solid, given the fact that we haven\u2019t achieved our 2% target, and given the fact that we may have uncertainties and other factors that may be pushing up inflation.\u201d<\/p>\n<p>Separately, Austan Goolsbee, president of the Fed’s Chicago branch, said in an exclusive interview with The Associated Press Friday that he still expects the central bank’s rate will be lower in the next 12 to 18 months than it is now. But he also said it makes sense for the Fed to take a slower approach as it nears a point where it may stop reducing rates.<\/p>\n<p>He also noted that the prospect of tariffs has muddied the waters a bit for the Fed in the coming months. Tariffs may cause a one-time increase in prices but don’t necessarily cause ongoing inflation.<\/p>\n<p>As a result, Goolsbee said, Fed officials will have to sort through any price increases that do occur to determine whether they are one-time changes, or a reflection of persistent inflationary pressures.<\/p>\n<p>\u201cThat\u2019s not that easy to do, it\u2019s going to take time to figure that out,\u201d he said. \u201cWe’ve still just got to wait for the dust to clear.\u201d<\/p>\n<p>Other officials also suggested that it will take time for the Fed to determine what steps it needs to take next.<\/p>\n<p>Lorie Logan, president of the Fed’s Dallas branch, said Thursday that while in \u201csome scenarios\u201d the Fed may soon cut rates, it’s also possible \u201cwe’ll need to hold rates at least at the current level for quite some time.\u201d<\/p>\n<p>Even if inflation were to fall close to the 2% target, she added, that wouldn’t necessarily mean the Fed should \u201ccut rates soon.” Instead, with the economy mostly healthy and hiring holding up, the Fed’s key rate may already be close to the level at which it doesn’t restrict or stimulate growth, she said \u2014 a level that economists refer to as the \u201cneutral rate.\u201d<\/p>\n<p>The government said Friday that employers added a solid number of jobs last month while the unemployment rate ticked down for the second straight month to 4%, historically quite low. Hiring in November and December was revised much higher.<\/p>\n<p>Steady hiring and a mostly-healthy job market suggest that there is less of an urgent need for the Fed to reduce borrowing rates. It implemented a steep half-point cut in September after weak hiring over the summer spurred fears that the economy was stumbling, possibly into recession.<\/p>\n<p>The jobs report \u201cbolsters our confidence that the Fed cutting cycle is over,\u201d economists at Bank of America wrote in a note Friday.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>On Tuesday, the central bank chair said the Fed is ‘well positioned’ to deal with risks, uncertainties<\/p>\n","protected":false},"author":186339,"featured_media":493939,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2313,2312],"tags":[107544,100540,2321,3807,3859],"yst_prominent_words":[2173,51894,41598,41507,41084,36544,29606,20816,17653,16878,15503,13013,6355,5018,2171],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/502214"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/186339"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=502214"}],"version-history":[{"count":3,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/502214\/revisions"}],"predecessor-version":[{"id":502227,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/502214\/revisions\/502227"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media\/493939"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=502214"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=502214"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=502214"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=502214"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}