Investors Expect Fewer Rate Cuts Than Fed’s Hawkish Guidance
Market pricing has shifted hawkishly, with investors now expecting only one further 25 basis points cut in 2025, according to analysts from Macquarie. This comes just a day after the Federal Open Market Committee cut its benchmark rate by 25 basis points to a range of 4.25% to 4.5% at its December meeting.
The Fed’s hawkish forward guidance, which sees just 50 basis points of cuts in 2025, down from 100 basis points in September, has been met with skepticism by investors. Fresh inflation concerns have driven the shift, with 15 participants now seeing risks to the core PCE projection as weighted to the upside, up from just 3 in September.
Macquarie believes the Fed is closing in on the end of the rate-cutting cycle, with the trough rate for the cycle expected to be in the 4.0 to 4.25% range. The bank’s baseline remains for the Fed to cut rates once more, with the potential for this to occur in March or May.