The United States Federal Reserve, led by Jerome Powell, is at a crossroads. Will US Fed cut rate continue to pause or go for a rate cut in the next FOMC meeting scheduled for March 18-19, 2025? Surprisingly, there are views emerging on a Fed rate hike as well.

The January US CPI data has surprised the markets and the Fed as all data-points showed an increase.

Headline CPI M/M was at 0.5% vs 0.3% forecast and Headline CPI Y/Y was at 3.0% vs 2.9% forecast. Also, Core CPI M/M was at 0.4% vs 0.3% forecast and Core CPI Y/Y was at 3.3% vs 3.1% forecast. The US Producer Price Index (PPI) also jumped 3.5% year on year in January, following a 3.3% increase in December, according to the US Bureau of Labor Statistics on Thursday. This reading exceeded the market’s expectation of 3.2%.

Larry Tentarelli, Chief Technical Strategist for Blue Chip Daily Trend Report is of the view that the Fed’s forecast for all four key CPI metrics suggests a potential increase in interest rates if inflation continues to rise. While immediate policy changes are unlikely, a series of 2-3 above-prediction inflation reports could pressure the Fed to raise rates. The Fed is expected to be on hold until May.

Investors should monitor 10-year US Treasury yield closely for potential negative headwinds for stocks in the near-term due to higher bond yields and equity market volatility. Any move closer to or above 4.80 may result in negative near-term headwinds for stocks.

Jamie Cox, Managing Partner for Harris Financial Group feels inflation levels are not resurgent, and if they persist, the Fed will be on hold until October. Food and Energy are key players in the hot reads, potentially providing a spring respite.
 
Also Read: Trump’s tariff moves and economic data could rock the global markets this week

US inflationary pressures are coming out in the open now, but Trump’s tariffs’ impact on the economy is yet to be observed. Trump’s reciprocal tariffs against every country that imposes duties on US imports is to come into effect from April 1, 2026.

Bill Adams, Chief Economist for Comerica Bank says, “Inflationary pressures look like businesses resetting prices higher at the turn of the year to pass on increased expenses they felt in 2024. The Fed will see January’s hot inflation print as confirmation that price pressures continue to bubble beneath the economy’s surface. That will reinforce the Fed’s inclination to at least slow and possibly even end rate cuts in 2025.
 
The Fed is also watching the impact of higher tariffs, more restrictive immigration policies, and tax cut plans. These policies could all add to inflation as their effects ripple through the economy, causing the Fed to keep interest rates higher than they would have been under the status quo.”

Also Read: US Stock Market Outlook: Mixed predictions and warning signs in 2025

The call for a rate hike may be premature unless the ground situation significantly changes. Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management says, “The increase in inflation metrics completely takes away the ability of the Fed to cut rates and although it’s too early to predict that they will begin raising rates any time soon, the market is going to start seriously considering that the next move the Fed makes – even if it is in late 2025 or early 2026 – is going to be a hike and not a cut.”

The FOMC meeting on March 18-19 will be crucial as the Summary of economic projections will also get released showing the updated US Fed Plot. The Fed dot plot displays individual views of interest rates by FOMC members by the end of the current year and over the next few years.

Gold Price: Impact of Inflation and Trump’s Tariffs

Gold is caught up in a state of flux. Gold price is at an all-time high and trades around $2900, currently influenced by two major factors – US CPI and Trump tariffs. The US CPI data indicates an increase in inflation, which could potentially lead the US Federal Reserve to maintain higher rates. This, in turn, could keep gold prices at bay.

If and when Powell becomes dovish, expect a spike in gold prices. On the other hand, concerns about US President Donald Trump’s tariff plans may end up giving support to the yellow metal. The gold price in India is also holding ground and 24 carat gold rate today for ten gram is at Rs 86,280.