Investors are rife with speculation that the Federal Reserve will raise interest rates in 2025. This is despite recent aggressive rate cuts. Conversation is intensifying around a possible policy reversal.
What happened : While the likelihood of a rate hike remains at zero according to CME Group’s FedWatch, the topic is gaining importance among investors. The debate centers on whether the barriers to raising rates are greater than those to cutting them, the Wall Street Journal reported Wednesday.
Historically, the Fed has signaled major policy changes well in advance, with only one case of a swing from cuts to hikes in a year since 1994. This occurred in 1998, following the Long-Term Crisis. Term Capital Management.
Some analysts believe the Fed has learned from past inflation shocks and could act quickly if necessary. Ed Al-Hussainy of Columbia Threadneedle Investments noted: “It’s a paper barrier, and they will get through it quickly if the data becomes overwhelming.”
Investors considering the possibility of rising rates could look to short-term Treasuries. However, market volatility and risk of loss remain significant concerns.
Why it matters : Speculation surrounding potential rate hikes follows a strong jobs report in December, which led Wall Street analysts to reconsider their interest rate forecasts. The Goldman Sachs economist David Mericle adjusted its projections for Fed policy in 2025, reducing expected rate cuts due to strong jobs numbers.
Additionally, minutes of the Federal Reserve’s December meeting revealed uncertainty about upcoming rate cuts, as noted Jeffrey Roachchief economist of LPL Financial. The Fed’s use of the word “uncertain” repeatedly highlights the difficulty of charting a clear path for interest rates in unpredictable economic conditions.
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Disclaimer : This content was partially produced with the assistance of Benzinga Neuro and was reviewed and published by Benzinga editors.
