The First Voice from FED in the Beginning of 2025: Hawkish! The Slowdown in Inflation Is Questioned as an Illusion

TradingKey - After the hawkish rate cut at December 2024 policy meeting, at the start of 2025, Federal Reserve officials made "hawkish" remarks, emphasizing that the Federal Reserve's task of combating inflation is still unfinished, which means that there are still significant obstacles to the Federal Reserve's next rate cut.

On Saturday (January 4th), Mary Daly, the president of the Federal Reserve Bank of San Francisco, said that although the Federal Reserve has made significant progress in reducing price pressures over the past two years, inflation is still "uncomfortably above our target".

The U.S. inflation rate has dropped significantly from its peak of around 7% in mid-2022 to the current 2.4%, but it is still higher than the 2% target level pursued by the Federal Reserve.

On the same day, Fed Governor Adriana Kugler with a permanent vote on the Federal Open Market Committee (FOMC), said that they are fully aware that they haven't reached that stage yet and it's not time to declare victory. Meanwhile, policymakers hope that the unemployment rate will remain at the current level instead of rising rapidly.

Kugler said that the recent inflation might just be a "bump" rather than a continuous improvement. She hopes to ensure that the inflation rate declines sustainably and mentioned, "We saw inflation in the first quarter of 2024, and we see it again now."

Daly said that she doesn't want to see the U.S. job market slow down further. There might be fluctuations gradually in a certain month, but the overall labor market definitely won't slow down further.

At the December meeting last year, the Federal Reserve cut interest rates by 25 basis points as the market expected, but the latest Summary of Economic Projections raised the inflation targets for the next few years and cut the forecast for the number of rate cuts.

In addition, the result of the rotation of voting members on the FOMC in 2025 is: the arrival of 2 hawkish members, 1 dovish member, and 1 neutral voting member.

Barron's believes that this will make the decisions in 2025 tilt towards the hawkish side; TD Securities said that this annual change in committee members will open the door to more opposition votes against rate cuts.