The market is wrong about US rates under Donald Trump in 2025
The resilient American economy and policies of the new administration will lead the Fed to tighten policy
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EVEN after all the commotion around Donald Trump’s return to the White House, there is still a widespread mismatch between the boost to growth widely expected under the president and US interest rate expectations.
The latest meeting of the Federal Reserve in December spooked markets with a “hawkish” outlook on the prospect for further rate cuts. Markets adjusted, pricing in two cuts rather than four for 2025.
On timing, markets are now pricing in a 25 per cent probability of a cut in March, rising to more than 60 per cent by June and near 84 per cent by December. Overall, the market is pricing in some 0.4 percentage point of cuts by the Fed. We disagree.
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