Fed decision forecast, the Federal Reserve is likely to hold off on cutting interest rates until the summer, according to recent market analyses.
 

CPI Overview

The Consumer Price Index (CPI) rose by 2.9% year-on-year in December, slightly above the anticipated 2.8%. This indicates that inflation remains stubbornly elevated, exceeding the Federal Reserve's target of 2%.
 

Core Inflation Trends

Core inflation, which excludes the more volatile food and energy sectors, increased by 0.2% in December, maintaining an annual rate of 3.3%. This steady rate reflects persistent inflationary pressures in the economy.
 

Rising Food and Energy Prices

Both food and energy prices experienced significant increases, with energy prices surging by 2.6% and gasoline prices jumping 4.4%. Additionally, labor costs are contributing to the stickiness of inflation. The lingering effects of the COVID-19 pandemic continue to disrupt labor supply, particularly in sectors like healthcare and car repairs.
 

Goods vs. Services Price Trends

Consumer prices for goods have diverged from those for services. While goods prices had been declining due to the resolution of pandemic-related supply-chain issues, they have recently stabilized or even increased. In contrast, prices for services, particularly in healthcare and car repairs, have generally risen due to higher labor costs and auto prices.
 

Fed's Next Moves

Federal Reserve Chair Jerome Powell has expressed ongoing concerns about inflation. He pointed to various factors contributing to high inflation rates, including rising costs in housing and automobile insurance. Natural disasters, such as recent wildfires and hurricanes, are likely to elevate insurance costs and further pressure inflation. Moreover, the increasing number of uninsured motorists poses additional risks to insurance rates.
 

Managing the "Powell Paradox"

Powell has advocated for a cautious approach, suggesting that the Fed may need to maintain higher interest rates for an extended period to combat inflation. Given the latest inflation data, it is unlikely that the Fed will cut rates before summer. Powell also discussed the "Powell Paradox," where his dovish remarks can sometimes lead to market optimism, inadvertently fueling inflationary pressures. Investors are encouraged to focus on long-term strategies during this volatile period.
 

Fed Funds Rate Outlook

Overall, Powell is committed to achieving the Fed's dual mandate of price stability and maximum employment, despite the challenges posed by external factors and economic uncertainties.
 

Market Expectations for 2025

We expect stocks to trend modestly higher in 2025, considering both upside and downside scenarios. Short-term weakness cannot be ruled out, especially as market sentiment remains stretched and much positive news is already priced in. Potential upside could stem from economic growth, supportive Fed policies, strong corporate earnings, and favorable measures from the Trump administration.

Conversely, likely downside scenarios could involve re-accelerating inflation, rising interest rates, and geopolitical tensions that may harm the economy. Should inflation pick up again, equities might need to adjust to a slower and shallower Fed rate-cutting cycle than currently anticipated by the markets.
 

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. 

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.