Market update - February 14th 2025

Fed Policy Outlook: Rate Cuts Unlikely Before June Amid Persistent Uncertainty

Payroll growth has steadied for now, removing the main reason for the Federal Reserve to ease policy again before gaining more clarity on tariffs. Fed Chair Powell’s recent remarks to Congress, along with 100 basis points of rate cuts, reinforce a clear message: policy remains tight.

Even if inflation stays high, the Fed seems inclined to hold its stance for an extended period rather than act in the near term. While the long-term goal appears to be bringing rates down to a neutral level, no cuts are expected before June. Futures markets now suggest December as the earliest likely timing for the first rate cut of the year.

The unexpected rise in January’s Consumer Price Index (CPI) likely resulted from two factors: seasonal price adjustments by firms—an early-year pattern not fully accounted for in inflation models—and consumers making purchases ahead of anticipated tariffs. This, along with Powell’s cautious tone, has made markets more skeptical about rate cuts happening this year.

Uncertainty around future Trump policies

A striking omission in the Federal Reserve’s latest Monetary Policy Report—published on Tuesday—was any direct mention of three key issues: Trump, trade, and tariffs. While tariffs were briefly noted, neither President Trump nor the word “trade” appeared. This underscores the ongoing uncertainty around Republican policies.

Trump’s economic strategy—deregulation, tax cuts, immigration controls, and the looming threat of tariffs—could keep both growth and inflation elevated. As a result, a rate cut before June seems increasingly unlikely. However, uncertainty remains high. Markets are trying to factor in these policies, but tariffs are still unresolved.

In particular, the lack of clarity around Trump’s Bitcoin strategic reserve policy adds another layer of uncertainty. Until trade agreements are finalized and the administration provides clear direction, Bitcoin markets are likely to remain choppy, with price swings triggered by updates from Trump’s cryptocurrency task force.