Economists are weighing in on the Federal Reserve’s recent statement, with varying interpretations of its implications for future interest rate cuts. Oren Klachkin, an economist at Nationwide, suggests the December dot plot indicates risks still lean towards eventual rate cuts, though convictions aren’t strong enough for immediate policy changes. Klachkin notes that most Fed policymakers are adopting a wait-and-see approach, closely monitoring upcoming economic data.
TD Securities believes the Fed’s statement signals a higher threshold for further rate cuts, citing a stabilising labour market and solid economic activity at the end of last year. They anticipate stronger growth in 2026, potentially amplified by fiscal stimulus. The firm suggests the Federal Open Market Committee (FOMC) will likely remain on the sidelines until more visible progress is made towards the Fed’s 2 per cent inflation target, expected later in the year.
Chris Rupkey of FWDBONDS observes that Fed officials appear less concerned about the labour market, potentially delaying near-term interest rate cuts. Samuel Tombs from Pantheon Macroeconomics dissents, arguing that the Fed is “prematurely sounding the all clear on the labour market”. Pantheon Macroeconomics anticipates the FOMC to ease by 75 basis points this year, with 25bp cuts expected in March, June, and September.
Tombs also predicts that President Donald Trump will likely decide on a new Fed chairman between the March and May policy meetings, allowing time for Senate confirmation before Jerome Powell’s term concludes on May 15.
