The market expects the Fed to be coy about more rate cuts without solid evidence inflation is tamed

The market expects the Fed to be coy about more rate cuts without solid evidence inflation is tamed. The next Fed meeting is Jan 29 and the CME FedWatch tools shows a whopping 88.8% betting the Fed does not cut then. We do not get the PCE release until a few days later (Jan 31).

The next meeting is March 19 and only 48.4% see a cut then, with 46.2% saying no change, nearly a tie. We will have had only one PCE release by then (Feb 28).

Meanwhile, the ECB is forecast to cut four times, and if not four times, then three. The consensus for the UK is hard to pin down. The BoE itself forecast four cuts in 2025, but then the Dec vote was split more than usual, casting doubt.

That leaves the other big G7 country, Japan. As the yen creeps toward 160, the BoJ may well choose a rate hike rather than intervention. That seems to have been the driver of the move down on the last days of 2024 and after aounce, it seems to be at work again. Analysts are sticking to March for the first hike, especially after Mr. Ueda said a wait-and-see-Trump stance was wsie, but the makret thinks otherwise. It’s doubtful anyone has inside information--the move is pure speculation. 

As for what lies ahead in the new year, we have found over the years that nobody has a real grip on any timeframer longer than a few months, at best.

Forecast:

As noted above, expectations are firm that the euro will continue to fall, with the first target the B band bottom at 1.0292. Penetration would likely mean even further losses. A bounce (on profit-taking) would not reach the 20-day (1.0437), let alone the channel top (1.0517), not without a very big Shock. 

Tidbit: The St. Louis Fed has the schedule for 2025 release dates of the PCE data.

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