Industry experts predict zero rate cuts in 2025, with inflationary pressures potentially preventing the Fed from cutting interest rates during the FOMC meeting on January 28-29.

All eyes are on US inflation data to be released today. The US Bureau of Labor Statistics is set to release its December CPI data on January 15, 2025, at 8:30 A.M. Eastern Time.

Wednesday’s CPI release will be the first big economic data the Fed receives in 2025 and before the FOMC meeting on January 28-29. Fed Chair Powell has repeatedly stated that incoming economic data will heavily influence interest rate decisions.

The previous month’s data showed that inflation remained a concern for the US Federal Reserve. In November, the US CPI rose 2.7 percent (by 0.3% monthly) for the 12 months ending November, after rising 2.6 percent over the 12 months ending October. The core inflation (all items less food and energy) rose 3.3 percent (by 0.3% monthly) over the last 12 months.

Inflation has decelerated significantly since peaking at 9.1% in June 2022 but remains sticky and is showing signs of uptrend and the US job market is also showing resilience.

If December’s total and core CPI inflation rates rise, financial markets may experience significant turbulence due to investors’ lower expectations for 2025 interest rate cuts.

The December jobs report resulted in a significant drop in equity markets and bond prices due to a surge in the dollar and bond yields. Any good news on the economy and the job market is bad news for the markets. The reason is the markets will have to live on with higher rates for longer as a robust job market boosts the economy and may re-ignite inflation. The unemployment rate fell to 4.1% and payrolls added 256,000 net new jobs in December.

The Federal Reserve FOMC meeting minutes from the December 2024 Federal Open Market Committee meeting also revealed concerns about high inflation.

Some industry experts predict zero rate cuts in 2025 while others stick to one rate cut. Many have warned that inflationary pressures may prevent the Fed from cutting interest rates in the FOMC meeting on January 28-29. US stocks made a slow start to 2025. After two back-to-back years of over 20%, what’s in store this year remains to be seen.