December Jobs Report Fuels Speculation of Fed Rate Hikes in 2025
A surprisingly strong December jobs report is reshaping Wall Street’s outlook on Federal Reserve policy, with many strategists now betting the central bank will maintain its current interest rate levels. However, some experts suggest this robust data could set the stage for potential rate hikes as early as 2025.
Bank of America Securities US economist Aditya Bhave highlighted this sentiment in a recent client note, stating, “Our base case has the Fed on an extended hold. But we think the risks for the next move are skewed toward a hike.” Bhave added that while the bar for raising rates remains high, factors such as a rebound in inflation or rising inflation expectations could push the Fed to act.
Inflation Risks Loom Large
The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index excluding food and energy, rose 2.8% year-over-year in November, up from 2.7% in October. Meanwhile, the University of Michigan’s consumer sentiment survey revealed a jump in one-year inflation expectations to 3.3% in January, marking the highest level since 2008.
These inflationary pressures could challenge the Fed’s progress toward its 2% target, especially as new economic policies under President Donald Trump might either sustain current inflation levels or exacerbate them.
“Inflation is stuck above target, with upside risks,” Bhave emphasized, adding that the December jobs data likely signals the end of the Fed’s rate-cutting cycle.
Labor Market Strength Surprises Economists
The Bureau of Labor Statistics reported that 256,000 new jobs were added in December, significantly surpassing expectations of 165,000 and outpacing November’s 212,000 figure. The unemployment rate dropped to 4.1%, down from 4.2% the previous month.
Although the labor market showed signs of cooling earlier in 2024, Friday’s report revised the cycle-high unemployment rate from 4.3% in July to 4.2%. This adjustment suggests that while the labor market has eased from its peak heat, it remains resilient.
Wells Fargo senior economist Sarah House described the December unemployment rate as “just right” in her note, reflecting a stable balance between economic growth and labor market health.
What’s Next for the Fed?
As inflation risks persist and the labor market remains robust, Wall Street will closely watch future data releases to gauge the Fed’s next moves. While an extended pause remains the consensus, the potential for rate hikes in 2025 is no longer off the table.
For investors, this evolving narrative underscores the importance of staying attuned to shifts in economic policy and market dynamics as 2025 approaches.
Source : Swifteradio.com
