I expect Wednesday’s meeting of the Federal Reserve’s Open Market Committee to be the big event of the week. Not because the Fed will do anything unexpected on interest rates. It won’t change its benchmark policy rate now at 4.25% to 4.50%. But because the Fed might say something that hints on whether and when it might cut interest rates again.
Right now nobody expects the Fed to cut interest rates at its January meeting. The CME FedWatch Tool put the odds of “no change” at 97.9% on Friday.
The Fed doesn’t meet in February so the soonest the Fed could cut interest rates would be its March 19 meeting. Prices in the Fed Funds Futures market, which are what the CME FedWatch Tool uses to calculate the odds of a Fed move on interest rates, put the odds of “no change at the March meeting at 72.4%. You have to go out to the Fed’s June 18 meeting before the odds of “no change” dip below 50% at 30.4%.
The March 19 meeting remains the big deal in interest rate policy. That meeting includes the quarterly update of the Fed’s projections for interest rates and inflation for the ends of 2025 and 2026. A change in those projects will either knock stocks for a loop or provide new fuel for stocks already at record highs.
But investors and traders aren’t going to wait for March 19 to place their bets on a June cut/no cut scenario. They will be looking to the Fed’s news release and Fed chair Jerome Powell’s news conference for any hints on the Fed’s thinking.
President Donald Trump has already staked out his position on interest rates: They’re too high he said in a video appearance at the Davos World Economic Forum and the Fed should cut rates immediately.
I don’t expect the Fed to pick a fight with the President in its Wednesday statement. But we could see the Fed make an oblique reference to Trump’s policies since it is those policies that have introduced enough uncertainty into the economic forecast to make the Fed think twice about cutting interest rates.
Watch this space.
