January 2025 FOMC Preview: Defiantly Data Dependent?
The desk anticipates that the Federal Reserve will maintain its current interest rate levels during the January 2025 FOMC meeting, emphasizing a data-dependent approach. Per the full note from MUFG EMEA, George Goncalves suggests that Chair Powell will likely convey a neutral stance, reflecting the Fed's ongoing assessment of economic indicators. This expectation aligns with the broader market sentiment that favors stability in rates amidst mixed economic signals.
What the desk is arguing
MUFG believes that the Fed's January 2025 meeting will be characterized by a stance of being 'defiantly data dependent,' leading to a decision to keep interest rates unchanged. Their analysis underscores that Powell will likely provide a balanced message, without committing to any future rate hikes or cuts unless the data warrants such action.
The desk suggests that current economic trends, which show a mixed economic landscape, support their view of a neutral Fed policy. They implicitly reject the notion that imminent rate hikes are justified in light of recent data, arguing instead for a cautious approach that prioritizes economic stability over aggressive monetary tightening.
Where it sits in our coverage
Our consensus target remains stable at 1.075 with a firm spread reflecting market expectations around the Fed's future moves. This outlook aligns with MUFG's view of maintaining a neutral stance, suggesting that the market will continue to digest economic data before deciding on further rate adjustments.
Firms that currently echo a similar sentiment include: - JPMorgan: Target set at 1.10 for Mar26, indicating aligned expectations on Fed policy. - Goldman Sachs: Holding a target of 1.08, consistent with a data-dependent approach. - Barclays: Projecting a target of 1.07, aligning with MUFG's cautious outlook.
How other firms see it
Despite MUFG's outlook, some firms express alternative views on the Federal Reserve's trajectory. BofA, for instance, maintains a contrary stance with a lower target of 1.04 for Mar26, suggesting a belief that the Fed may be forced to cut rates more aggressively than currently anticipated.
In contrast, those aligning with MUFG's perspective focus on maintaining current rate levels. This divergence highlights a growing debate on the future direction of monetary policy as economic indicators evolve.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01MUFG expects the Fed to keep interest rates unchanged at the January 2025 meeting.
- 02Chairman Powell is likely to deliver a neutral message, reflecting data dependency.
- 03Some firms, like BofA, predict earlier rate cuts, contrasting with MUFG's outlook.
Market implications
If MUFG's projection holds true, the FX market may witness reduced volatility in response to Fed policy, stabilizing dollar pairs. A neutral Fed could lead to an extended range for key currency pairs as traders await clearer economic signals before positioning for future moves.
Risks to this view
The primary risks to MUFG's forecast center around potential unexpected economic data that could shift the Fed's outlook toward tightening faster than anticipated. Additionally, geopolitical developments or shocks to the financial system could also force the Fed to reconsider its policy stance earlier than expected.
Welcome to the MUFG Global Markets Podcast. I'm John Cook, and I'm joined today by George Goncalves, MUFG's Head of U.S. Macro Strategy.
It's Tuesday, January 28th, 2025. Welcome back to the podcast, George. John, good to be back.
Good to speak to you. Yeah. And actually, I guess I should welcome myself back to the podcast because I have been MIA for a number of episodes.
So let's see if we can dust some of those cobwebs off. So George, as you've mentioned a number of times, it really kind of feels like the new year has only started now that President Trump has actually come into office. It feels like we're sort of waiting the first 20 calendar days of the year, if you will.
So that has been and remains everyone's focus. That being said, we do have the first Fed meeting of 2025 upon us. Let's start there.
You recently published your January FOMC preview, which you entitled, Defiantly Data Dependent? So I guess why don't we start with that sort of teaser of the title and go into, you know, kind of what you're expecting at a high level from the FOMC on Wednesday. Yeah.
So, look, I guess the point of the piece and the title is just to kind of think through, like, you know, why are they data dependent right now? Is it purely just back to their balance of risks around where they are in the inflation outlook versus the jobs market? And in the past, they had mentioned as part of their approach that they want to let the economy run hot.
And or if the labor market were to continue to improve it, that wouldn't stop them from cutting rates. So why are they skipping now? Most people are expecting them to not cut rates anytime soon.
And this meeting, most likely they're not going to make any policy adjustments. And so is it just a function of they truly are data dependent or are they just kind of going against their own sort of framework? Because in theory, based on their neutral expectations, they're still restrictive and rates are still pretty high, north of 4%.
So is this a defiance? Or is it just unclear what data dependent really means? And so that was really the point of the article and have that intrigue of, like, what's going on here?
Why are they not going ahead with cuts now? Because I still think that they should be cutting rates. Yeah, that's interesting.
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