(Seoul=Yonhap Infomax) Yun Gu Lee = The U.S. Federal Reserve is expected to hold interest rates steady at its upcoming Federal Open Market Committee (FOMC) meeting scheduled for January 28-29 (local time). At the first FOMC meeting since Donald Trump's inauguration, there is a tendency to focus on moderating the pace due to increased uncertainty. The prevailing view is that the Fed will maintain the hold trend and then proceed with one rate cut within the first half of the year. However, President Trump's direct pressure on the Fed for rate cuts is acting as a variable.

President Trump
[Source: Yonhap News Agency file photo]

According to a compilation of forecasts from 12 domestic and foreign institutions regarding the January FOMC monetary policy meeting by Yonhap Infomax on the 24th (screen number 8852), 11 institutions estimated that the base rate would be maintained at 4.25-4.50%. The Fed previously lowered the base rate by 25bp last December. After raising rates by 25bp for the last time in July 2023, the Fed had held rates steady from September of the same year before changing its monetary policy direction with a surprise "big cut" (50bp reduction) last September, cutting rates three times in a row. However, the Fed reduced its interest rate path forecast for 2025 from 100bp to 50bp cuts, and hawkish signals increased as Fed Chair Jerome Powell mentioned that they could be cautious about additional cuts. At the time, when asked if they could stop cutting rates, Powell said they couldn't rule out anything, including hikes or holds. Global investment banks (IBs) have also recently revised their rate cut forecasts. Bank of America (BofA), which viewed the Fed's rate cut cycle as over, predicted that rates would be maintained in a hold state over the long term. Goldman Sachs, along with JP Morgan, pushed back the timing of the first rate cut this year from March to June and reduced the number of projected cuts from 3 to 2. Wells Fargo also assessed that the possibility of a March rate cut is diminishing. Citigroup abandoned its January rate cut forecast and revised the timing of the first cut this year to May. As of January 23, according to the CME FedWatch, the probability of the Fed's federal funds rate (FFR) being held at 4.25-4.50% in January was 99.5%. A 25bp cut was only 0.5% likely. The probabilities of holds in March and May were also high at 75.6% and 58.2%, respectively. There are concerns that President Trump's policies of universal tariffs, tax cuts, and mass deportations could trigger an inflation rebound. On his first day in office on January 20 (local time), President Trump announced plans to impose 25% tariffs on Mexico and Canada from February 1. He also mentioned considering imposing 10% tariffs on China, which could be implemented from next month. Trump's tariffs are entering the final countdown. Seung-won Kang, an analyst at NH Investment & Securities, said, "The December FOMC already mentioned moderating the pace of further easing," adding, "We need to confirm the tariffs and tax cut policies that will materialize during the Trump administration's honeymoon period, as well as plans for Treasury issuance." He added, "The January FOMC will maintain interest rates and repeat a cautious stance," and "As this is a period when Trump's policies will be intensively announced, the Fed will focus on reaffirming its principled position rather than sending specific signals." Experts predicted that the Fed would resume additional rate cuts from June this year. Sung-woo Park, an analyst at DB Financial Investment, analyzed, "Rate cuts will be temporarily suspended due to uncertainty about the inflationary impact of tariffs in the early days of Trump's second administration," and "Rate cuts could resume from June as inflation uncertainty eases." He predicted, "We expect a very gradual cut path at a pace of about 25bp per half-year," and "The final base rate of 3.50% will be reached by the end of 2026." Eol Shin, an analyst at Sangsangin Securities, evaluated, "The need to observe policy effects is being highlighted as a total of 100bp rate cuts have been implemented since last September," and "The argument for moderating the pace is gaining strength as the continued robust growth of the U.S. economy is also expanding caution against premature declarations of victory over inflation." He continued, "With the launch of Trump's second administration, the Fed's burden of judging the multifaceted effects of policy implementation is increasing," and predicted, "Additional rate cuts will only be possible in June after maintaining a hold for the time being." However, President Trump is a variable. On the 23rd (local time), he stated that he hopes interest rates will "come down a lot" and said, "I will meet and talk with Chair Jerome Powell at an appropriate time." Regarding the Fed's rate cuts, he said he would make a "strong statement" and answered "yeah" when asked if he thought the Fed would respond to demands for rate cuts. Earlier that day, in a video speech at the Davos Forum, he pressured major oil-producing countries to lower oil prices and said that rate cuts should follow. [image2] yglee2@yna.co.kr (End) 】】
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