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Strong Employment and Persistent Inflation Dampen Fed's Expectations for Rate Reductions

Strong Employment and Persistent Inflation Dampen Fed's Expectations for Rate Reductions

Bitget-RWA2025/11/14 22:44
By:Bitget-RWA

- The Fed's December rate cut probability dropped to 48%, reflecting skepticism over easing amid sticky inflation and strong labor markets. - Dallas Fed's Lorie Logan and Minneapolis Fed's Neel Kashkari oppose cuts, citing insufficient progress toward 2% inflation and gradual labor market cooling. - Persistent low unemployment and inflation above targets have shifted policymaker sentiment, with officials like Susan Collins and Austan Goolsbee cautioning against premature easing. - Market expectations contr

For the first time in several months, the likelihood of the Federal Reserve lowering interest rates in December has dipped below 50%, signaling a change in both economic indicators and the outlook of policymakers. According to the CME FedWatch tool, market expectations now indicate

at the Fed’s December gathering, a sharp drop from 94% at the start of November. This shift highlights increasing doubts among analysts and Fed officials about the necessity for more rate cuts, given ongoing inflation and the economy’s continued strength.

Lorie Logan, President of the Dallas Federal Reserve and a non-voting member this year,

on Friday, stressing that inflation remains elevated and is moving higher. “Unless I see clear proof that we are firmly on track to reach our 2% inflation goal, I believe keeping policy somewhat restrictive is the right approach,” she remarked at an energy industry event. Logan’s perspective is consistent with her previous opposition to the October rate cut, which she considered premature as the Fed continues its efforts to control inflation. She pointed out that while the job market is slowing, it is doing so at a “measured and suitable” rate, which she believes is essential for keeping inflation in check.

Strong Employment and Persistent Inflation Dampen Fed's Expectations for Rate Reductions image 0
Neel Kashkari, President of the Minneapolis Fed and also not a voter this year, expressed a cautious stance as well. Speaking to Bloomberg News, and has not yet made up his mind about December, pointing to “anecdotal signs of underlying strength” in the economy. He noted that recent reports have shown “continued trends” for the U.S. economy, leaving him open to either holding rates steady or cutting them, depending on upcoming data. among Fed officials, with others such as Susan Collins of Boston and Austan Goolsbee of Chicago also expressing caution about loosening policy further without more definitive signs of a weakening labor market.

Expectations for a December rate cut have faded, in contrast to the widely anticipated move in October.

was already “fully anticipated” by the markets, as investors had long predicted the cut. However, the absence of new triggers—like a marked slowdown in job growth or a significant decrease in inflation—has led to doubts about the need for more easing. , cautioned in November that the Fed is reducing rates at a time of record-high asset values and historically low unemployment, a rare combination that could fuel asset bubbles.

Recent economic trends have also made a December cut less likely. The U.S. job market remains strong, with unemployment near its lowest levels in decades, and although inflation has moderated, it is still above the Fed’s 2% target. These factors have strengthened the case for either holding rates steady or even raising them, rather than cutting. The Fed’s upcoming meeting on December 17-18 will be closely monitored for any indications about policy direction into 2026.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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