Analysts at OCBC Bank have shared their expectations regarding the US Federal Reserve's decisions in the coming year, based on projections for US inflation trends over the next few years.
In this context, the Federal Reserve recently revised its projections for personal consumption expenditure (PCE) inflation for 2025, increasing it to 2.5% from the previous estimate of 2.1%. Additionally, the central bank adjusted its forecast for core PCE inflation for the next year from 2.2% to 2.5%.
As a result, inflation is now expected to reach the Federal Reserve's 2% target by 2026–2027. This explains the slow pace of the Fed's rate-cutting cycle.
It is now anticipated that US interest rates will be reduced by 50 basis points throughout 2025, followed by another 50 basis points in 2026, and a further 25 basis points in 2027.
Federal Reserve Chair Jerome Powell remarked that the policy stance has become significantly less restrictive. Therefore, caution is warranted when considering further adjustments to the key interest rate.
OCBC Bank expects the Federal Reserve to pause at its January meeting. However, several economic data points remain to be evaluated before then.
