"Raise interest rates or hold steady? The Fed's policy direction in 2025 is an unknown gamble"
This month, the Federal Reserve announced a reduction of the federal funds rate by 25 basis points to a range of 4.25%-4.5%, marking the third rate cut this year. Although Fed Chairman Powell emphasized that future monetary policy will be more cautious, the latest data shows that the likelihood of the Fed raising interest rates again in 2025 has risen to 40%, drawing widespread attention from the market.
This expectation is supported by multiple institutions, including Apollo Global Management. They pointed out that while the U.S. inflation rate has eased recently, it has not yet reached the Fed's target of 2%, which limits the space for future rate cuts and increases the likelihood of rate hikes. This year, the U.S. inflation rate rose from 3.1% at the beginning of the year to a peak of 3.5% in March, and then steadily declined to 2.4% in September. However, since October, the inflation rate has rebounded again, reaching 2.7% in November, and the ongoing upward trend is causing headaches for policymakers.
At the same time, the resilience of the U.S. economy also supports the expectations for rate hikes. Strong economic activity, while a symbol of economic recovery, may also exacerbate inflationary pressures. The interplay between this economic strength and inflation control will be a key variable in the Fed's future policies.
Overall, the Fed faces a dilemma: should it continue to suppress inflation or accept a higher inflation rate to promote economic growth? The direction of monetary policy in 2025 will become an important barometer affecting global markets.
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