In the wake of Jerome Powell's latest press conference, many economists are engaged in a robust debate over the Federal Reserve's interest rate trajectorySome analysts suggest that the Federal Reserve's cycle of rate cuts may have reached its conclusion, with new insights emerging from the latest meeting transcripts, indicating no further cuts on the horizon until 2025. This discourse is igniting diverse opinions among experts, as a faction argues that the rate cut cycle could extend into 2026, while another firmly believes that the era of lower rates is behind us.

Following the recent Federal Reserve meeting, officials opted to keep the benchmark interest rate steady within the range of 4.25% to 4.5%. This suggests that the U.S. economy might be entering a "neutral policy" phaseThe decision was made against a backdrop of mounting global economic uncertainties impacting factors such as U.S. domestic growth, inflation, and the labor marketAlthough the Fed had initially forecasted two 25-basis point cuts in 2025, Powell’s comments during the press conference suggest that this outlook may shift.

During the press conference, Powell astutely noted that the Federal Reserve is not in a hurry to lower interest rates againInstead, he emphasized the importance of witnessing further improvements in inflation control and a potential cooling of the labor market before considering any cutsThis position underscores the Fed's cautious stance on the matter, especially when inflation has yet to be fully brought under controlGoing forward, monetary policy will continue to respond to the shifts in economic data, particularly regarding inflation and labor dynamics.

A segment of economists maintains that the rate cut cycle is at an end, primarily because the conditions specified by Powell—lower inflation and a slackening labor market—are unlikely to materialize in the near term

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Steven Blitz, Chief U.SEconomist at GlobalData TS Lombard, forecasts a 3% growth rate for the U.S. economy in 2025, surpassing the trend growth level of 2%. He opines that such robust demand could lead to a resurgence in inflation, compelling the Fed to uphold its high rates.

Moreover, James Egelhof, Chief U.SEconomist at BNP Paribas, has conveyed concerns about inflation in 2025, attributing it to increased tariffs, tightened immigration policies, and a relatively loose fiscal environmentHe is steadfast in his belief that the Federal Reserve will maintain interest rates unchanged until at least the middle of 2026.

Aditya Bhave, an economist from Bank of America’s Global Research division, echoes the sentiment that the interest rate reduction cycle has concludedHe interprets Powell's remarks as a signal that the Fed is under considerable pressure to refrain from cuts in 2025. Bhave suggests, “If the Fed does not cut in March, it implies that the first quarter will not see any rate reductions, and typically, they do not execute a gradual adjustment over a single cycle.”

Similarly, Matthew Luzzetti, Chief U.SEconomist at Deutsche Bank, expresses that the Federal Reserve aren't far from a "neutral" policy stance, with current rates hovering around 3.75%. Luzzetti argues that the Fed must maintain slightly above neutral rates, eliminating the prospect of further rate cuts this year.

Despite this, trading activities in the derivatives market indicate that some participants anticipate rate cuts within this year

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Widespread expectations are that the Fed could reduce rates by 25 basis points in June or the fall seasonHowever, there is an opposing view advocating that the Fed might resort to raising rates to tackle a resurgence in inflation.

The nuances in the derivatives market reflect a heightened sensitivity towards the Federal Reserve's forthcoming monetary policyWhile the Fed's recent decision to maintain rates has evoked speculation, there are prevalent anticipations for a potential cut in the latter half of 2025. Expectations concerning future rate hikes remain tempered, considering how the market is gradually pushing back its projections for an impending hiking cycleAlthough some economists posit that the rebound of inflation could compel the Fed to increase rates again, the overarching sentiment in the market leans towards the notion that the rate cut cycle is far from over.

Additionally, pricing in the derivative market illustrates a cautious outlook concerning the Federal Reserve's monetary policy direction in 2025. Should inflation fail to see a significant decline, market expectations regarding rate hikes could adjust sooner, indicating a potential reevaluation of policy direction by the FedWhile the central bank has asserted its lack of urgency to cut rates, immediate expectations in the market remain inclined towards a declineAs uncertainties in the global economy mount, there is an acute focus on whether U.S. economic growth can sustain itself robustly, thus supporting inflation and job market stability.

In summation, although the Federal Reserve has opted to temporarily keep interest rates unchanged, the forecasts surrounding future monetary policy continue to exhibit considerable ambiguity

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