The bank's analysts point out that Fed Chair Powell described the December rate cut decision as a "closer call," which was underscored by a dissent from Cleveland Fed President Hammack. Looking ahead, Deutsche Bank maintains its view that the Fed is likely to skip rate adjustments in January, potentially leading to an extended pause in 2025. The bank expects the federal funds rate to remain above 4% next year, with their base case scenario showing no additional reductions.
Today's meeting reinforced our baseline view that a skip at the January meeting could turn into an extended pause in 2025. We continue to view the nominal neutral rate around 3.75% and a need for the Committee to stay restrictive relative to that level. As such, we reiterate our view that the fed funds rate is likely to remain above 4% next year, with a base case of no additional reductions.The report also notes that some Fed participants have begun incorporating potential economic effects of President-elect Trump's policies into their forecasts, which may have contributed to the higher inflation projections for 2025 and 2026. On the labor market front, Powell characterized it as solid but indicated that current job creation levels are below what would be needed to maintain stable unemployment rates.
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