No Interest Rate Cut? Fed Could Keep Interest Rates High Throughout the Year

The latest CPI data has dashed expectations of aggressive interest rate cuts in 2025. With inflation still at 3% - far from the Fed's 2% target - the possibility of monetary policy easing in the near future becomes increasingly fragile. Let's analyze the key factors and their impacts on the financial market together.

  1. Enduring Inflation Challenge Core PCE inflation - Fed's preferred gauge - is currently at or above 3%. Factors such as tariffs and robust consumer demand have contributed to maintaining price pressures, prompting the Fed to proceed cautiously with policy adjustments. With inflation not easing towards the 2% target, rate cuts could pose risks of fueling price hikes, potentially harming the economy.
  2. Market sentiment is shifting Investors quickly recognized the shift in monetary policy scenarios. Initially, hopes of a series of interest rate cuts increased market risk and volatility. However, with new data showing persistent inflation, most investors now only expect a single rate cut or even no cuts this year. This is creating an uncertain environment, negatively impacting investment decisions.
  3. Increase Bond Yields and Pressure on the Market The 10-year bond yield has reached 4.651%, nearing the highest level since mid-January. This growth not only reflects expectations of higher interest rates in the future but also shows increasing pressure on the bond market. Investors may face a decline in the value of their investment portfolios if interest rates continue to rise, while fixed-income investments become less attractive.
  4. The Fed's Viewpoint and Forecast from Capital Economics According to forecasts from Capital Economics, given the current inflation situation, the Fed may not make any cuts within the next 12 months. This view is based on the assumption that inflation will remain high or even rise in the short term. If the Fed decides to prioritize controlling inflation over stimulating growth, maintaining high interest rates is inevitable.
  5. Impact on financial markets a. Stock Market: High interest rates mean increased borrowing costs and tighter financial conditions. This can slow down the growth momentum of businesses, leading to significant volatility in the stock market. Investors should prepare for a period of fluctuations and reassess their investment strategies. b. Bond Market: With the increasing bond yields, bond investments will face pressure due to the inverse relationship between value and interest rates. Investors in this field need to consider adjusting their investment portfolios to minimize risks. c. Strengthening the US Dollar: A tight monetary policy from the Fed will have a positive impact on the value of the USD, making it more attractive than other currencies. This could affect the foreign exchange markets and create new fluctuations in exchange rates. Conclusion With current inflation data and signs indicating that the Fed may maintain high interest rates, investors need to prepare for a challenging year. The stock market may experience significant volatility, bonds face downward price pressure, and the USD may strengthen its position internationally. Question for you: Do you still believe in the possibility of interest rate cuts this year, or do you think the Fed will continue to maintain high interest rates to control inflation? Let's discuss and share your opinions on the upcoming economic situation! This article hopes to provide you with a comprehensive and in-depth view of the current economic context, helping you make informed investment decisions in a volatile market. DYOR! #Write2Earn #CPIHighestSinceJune $BTC {spot}(BTCUSDT)
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