While the White House desires further monetary easing, signals from the market and economic data over the past 24 hours indicate an almost absolute scenario:
The Fed will keep interest rates unchanged at 3.50% - 3.75% in this January meeting.
Below are perhaps the 3 main reasons forcing the Fed to choose a cautious approach:
🔷 The biggest reason the Fed cannot rush to cut interest rates is the unexpected strength of the U.S. economy.
The GDPNow model of the Atlanta Fed updated yesterday has given a shocking figure: Forecasting GDP growth for Q4 2025 to reach 5.4%.
With an economy running at full capacity like this, cutting interest rates now is unnecessary and could ignite inflation.
🔶 The Fed does not want to fall into the situation of cutting interest rates too early.
By the end of 2025, the Fed had implemented three consecutive rate cuts totaling 0.75%.
Chairman Powell and his associates need to pause to observe how the old medicine has permeated the economy before making the next decision.
🔷 The tense political context is also an underlying factor.
In the face of public attacks from new Treasury Secretary Scott Bessent and investigations by the administration targeting Mr. Powell, the Fed has even more reason not to act according to the wishes of the political faction.
Maintaining interest rates at this time is the way the Fed sends a strong message about the independence of the Central Bank: Decisions are based on data, not on pressure.
With the three pillars above, tomorrow's meeting is expected to have no surprises regarding interest rates.
All eyes will be on Mr. Powell's speech to see how he will face questions about his own future and the interest rate path in the coming months.
This article is for reference only and is not investment advice. Please read and consider carefully before making a decision.