The US Federal Reserve recently reduced the federal fund interest rate by 25bps, bringing down borrowing costs to 4.25% – 4.5%. Despite this, experts suggest there is a 40% probability that the Federal Reserve will increase interest rates in 2025, according to Apollo Global Management. The firm predicts a potential rate hike in the coming years.
Inflation has been a challenge for the Federal Reserve, with the rate above 2% for most of the year. The US Inflation Rate started at 3.1% at the beginning of the year, peaked at 3.5% in March, and has since fluctuated between 2.4% and 2.7%. The consistent growth in inflation is a matter of concern for policymakers, as the ultimate goal is to bring the rate down to 2%.
The strength of the US economy is a contributing factor to the potential rate hike predictions for 2025. Robust economic activity can lead to sustained inflationary pressures, complicating monetary policy decisions for the Federal Reserve. As inflation remains above the target, the delicate balancing act facing policymakers is highlighted.
With the Federal Reserve taking a cautious approach to future rate cuts, the possibility of rate hikes in 2025 becomes more apparent. The Fed Chair Jerome Powell hinted at future rate cuts, but economic strength and inflation trends may counteract the need for further cuts. Maintaining a balance between economic growth and inflation targets will be crucial for policymakers in the coming years.
As economic strength continues to drive inflationary pressures, the potential for rate hikes in 2025 remains a possibility. The delicate balance between stimulating economic growth and maintaining stable inflation rates will be a key challenge for the Federal Reserve in the future. Only time will tell how policymakers will navigate these challenges in the years ahead.
