Economists polled by the Reuters news agency expect a resurgence of inflation in 2025 and that the U.S. Federal Reserve will slow its pace of interest rate cuts.
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The poll found that the 2025 inflation outlook has been upgraded among economists, with 75% of 103 surveyed saying the risk of inflation returning next year under president-elect Trump is high. The economists agree that Trump’s proposed policies, from import tariffs to tax cuts, are likely to be inflationary to the U.S. economy, leading to a pause in interest rate cuts.
The poll also found that 90% of economists anticipate a quarter of a percentage point rate cut when the American central bank concludes its final policy meeting of the year on December 18. However, most economists expect the U.S. Federal Reserve to then pause any further rate cuts in early 2025 amid concerns about rising inflation.
Bad for Stocks
A 25-basis point interest rate reduction on December 18 would lower the Federal Funds Rate to a range of 4.25% to 4.50% and would be the central bank’s third rate cut of the year. Looking beyond January 2025, there is no clear consensus among economists for what the U.S. Federal Reserve will do over the course of next year.
However, futures traders on Wall Street currently expect the U.S. Federal Reserve to cut interest rates only twice in the New Year, by 25-basis points each time. A resurgence of inflation and slowdown in interest rate cuts could lead to a selloff in the stock market, warn analysts. Fundstrat analyst Tom Lee, normally one of Wall Street’s biggest bulls, recently urged investors to be cautious heading into 2025.
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