Traders on Friday maintained their outlook that the Federal Reserve will hold off on interest rate cuts until June, following fresh inflation data and hawkish Fed commentary.
The latest government report showed that the Fed’s preferred inflation gauge rose to 2.6% in December, in line with expectations. The data was released alongside remarks from Fed Governor Michelle Bowman, who reiterated concerns about cutting rates too soon.
Futures tied to the Fed’s policy rate reflected about a 70% probability that the central bank’s short-term borrowing rate will be at 4.25% or lower after the June meeting. This estimate remained largely unchanged from earlier in the day, indicating that traders are sticking to their existing rate cut projections.
Market participants also pushed expectations for a second 2025 rate cut to no earlier than October, signaling caution over the Fed’s approach to monetary easing.
The data suggests that while inflation continues to moderate, it remains above the Fed’s 2% target, reinforcing the central bank’s cautious stance. With policymakers emphasizing the need for more evidence of sustained disinflation, traders appear to be aligning with the expectation that the Fed will take a measured approach before easing monetary policy later in the year.
