Nomura Holdings has become the first major global brokerage to forecast that the U.S. Federal Reserve will pause its rate-cutting cycle during its upcoming December policy meeting. This prediction comes in the wake of significant political changes following Donald Trump’s election victory, which has shifted market dynamics and investor sentiment.
In a note released on November 15, Nomura analysts indicated that they now expect the Fed to implement only two 25-basis-point (bp) rate reductions in March and June of 2025. This adjustment leaves their projection for the Fed funds rate unchanged at 4.125% through the next year. Currently, the Fed’s benchmark overnight interest rate stands between 4.50% and 4.75%, after having cut rates by a total of 75 bps throughout 2024.
The decision to pause rate cuts reflects a broader trend among financial institutions as they assess the implications of Trump’s policies on the economy. Other brokerages, including Goldman Sachs and J.P. Morgan, still anticipate a 25-bp cut from the central bank next month, but Nomura’s stance highlights a growing caution among analysts regarding future monetary policy.
Nomura’s outlook is influenced by recent hawkish comments from Fed officials, who have expressed concerns about ongoing economic growth and persistent inflationary pressures. The firm noted that as inflation remains above the Fed’s target rate of 2%, any moves to cut rates may be delayed as policymakers weigh the potential consequences of their decisions.
Wall Street is currently grappling with inflationary pressures as Trump advocates for tax cuts, higher tariffs, and stricter immigration policies. These factors could contribute to increased costs across various sectors, further complicating the Federal Reserve’s decision-making process.
Recent economic data has shown that U.S. consumer prices rose by 2.6% in the year ending October, exceeding the Fed’s inflation target but aligning with economists’ expectations. This rise in consumer prices indicates that spending remains robust, which is crucial since consumer expenditure is a primary driver of economic growth.
Traders are currently assessing a 34.7% probability that the Federal Reserve will pause its rate cuts in December, according to CME Group’s FedWatch Tool. This uncertainty reflects the complex interplay between inflation data, consumer behavior, and anticipated policy shifts under Trump’s administration.
Fed Chair Jerome Powell has recently indicated that while there may be room for further interest rate cuts, there is no immediate urgency to lower rates further at this time. “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell stated during a recent press conference.
This cautious approach suggests that the Fed is taking a wait-and-see stance as it monitors economic indicators and market reactions to potential policy changes. The central bank’s decisions will be critical in shaping economic conditions over the coming months as it balances growth with inflation control.
As Nomura predicts a pause in rate cuts for December, investors are advised to remain vigilant and informed about potential shifts in monetary policy and their implications for market dynamics. With inflationary pressures persisting and consumer spending showing resilience, the Federal Reserve’s next moves will be closely watched by all market participants.
The interplay between Trump’s administration policies and Federal Reserve decisions will undoubtedly shape investment strategies as we move into 2025. As always, investors should conduct thorough research and consider their risk tolerance when navigating these complex economic landscapes.
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