A man walks past the Federal Reserve building, in Washington, on Dec. 16, 2015.Kevin Lamarque/Reuters
The U.S. Federal Reserve is no longer expected to cut interest rates at its December policy meeting, Nomura has said, making it the first global brokerage to signal a pause in the central bank’s rate-cutting cycle in the wake of Donald Trump’s election win.
Nomura now expects the Fed to deliver only two 25-basis-point (bp) rate reductions at its March and June meetings in 2025, leaving the brokerage’s Fed funds rate projection unchanged at 4.125 per cent through next year.
The Fed’s benchmark overnight interest rate is currently in the 4.50 per cent-4.75 per cent range. It has cut rates by 75 bps in 2024.
Other global brokerages, including Goldman Sachs and J.P.Morgan, anticipate a 25-bp cut from the central bank next month.
Nomura expects the Fed to halt its tightening cycle next month after recent hawkish remarks from policy-makers amid ongoing economic growth and the likelihood of further elevated inflation, adding to the central bank’s indication that it is not in a hurry to lower rates.
This follows the Fed’s increasing hesitancy to cut rates as a major political shift is under way after Trump’s presidential victory.
Wall Street is trying to reconcile what it sees as further inflationary pressures in the coming year as the President-elect pushes for tax cuts, higher tariffs and a crackdown on immigration.
“We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause,” Nomura said in a note dated Friday.
Last week, data showed that U.S. consumer prices rose 2.6 per cent in the 12 months through October, above the Fed’s 2 per cent goal but in-line with economists’ expectations.
Traders now see a 34.7 per cent chance of the central bank pausing rate cuts in December, according to CME Group’s FedWatch Tool.
Nomura expects a long pause in U.S. rate cuts until March 2026 after the potential reduction in June.