The summary of the market's expectations for the Federal Reserve's interest rate cuts in 2025 is as follows:
1. Number of Rate Cuts and Timing
• Most institutions predict: The Federal Reserve may implement one to two rate cuts in the first half of 2025, with specific timing concentrated around March, June, or December, although predictions vary among institutions.
• Market participants' expectations: There is a general expectation that the Federal Reserve will make two rate cuts before the end of 2025, which is reflected in the pricing of interest rate swaps.
2. Pace and Magnitude of Rate Cuts
• Higher probability of rate cuts in the first half: Due to the robust performance of the U.S. economy but persistent inflationary pressures, the Federal Reserve may choose to cut rates in the first half, with each cut expected to be 25 basis points.
• Possible pause on rate cuts in the second half: As inflationary pressures rise and the job market stabilizes, the Federal Reserve may pause rate cuts in the second half.
3. Influencing Factors and Risk Alerts
• Inflationary pressures: The stickiness of core inflation, service inflation, and potential tariff policies could all impact the pace and magnitude of the Federal Reserve's rate cuts.
• Economic resilience: If the job market remains stable, the Federal Reserve may be more cautious in choosing the timing and magnitude of rate cuts.
• Policy uncertainty: The policy direction of the Trump administration creates uncertainty for the Federal Reserve's rate cut decisions.
• Geopolitical conflicts and global situation: Factors such as energy price fluctuations, the recovery process of the Chinese economy, and international geopolitical conflicts may also influence the Federal Reserve's rate cut decisions.
4. Overall Conclusion
• There is some divergence in the market's expectations for the Federal Reserve's future rate cuts, but the majority view leans towards the belief that the Federal Reserve may implement one to two rate cuts in the first half of 2025.
• Due to various influencing factors and uncertainties, the actual pace and magnitude of the Federal Reserve's rate cuts will need to closely monitor changes in economic data and policy dynamics.
