The recent discussions surrounding the Federal Reserve's interest rate decisions have sparked a lively debate among economists, many of whom are analyzing the implications of Jerome Powell's latest press conferenceAt the center of this discourse is whether the U.S. central bank has truly entered a new phase in its monetary policy, especially with indications that a cycle of rate cuts may have concluded and that rates might be maintained until 2026.

After the recent meeting, the Federal Reserve opted to keep its key interest rate steady at a range of 4.25% to 4.5%, signaling a potential shift towards a "neutral policy" stanceThis decision comes amid growing uncertainties in the global economy, particularly concerning domestic economic growth in the U.S., inflation pressures, and the state of the labor marketThe Federal Reserve had initially projected two rate cuts of 25 basis points for 2025, but comments made by Powell during the conference suggested this outlook could be reassessed.

Powell emphasized that the Federal Reserve is "in no rush" to lower interest rates, indicating that they would need to see further stabilization of inflation or a cooling of the labor market before making any decisions regarding cutsThis cautious demeanor underscores the Fed's commitment to monitor economic data, especially regarding inflation and labor dynamics, as they navigate future monetary policy.

Several economists assert that the rate cut cycle is indeed over, citing Powell's aforementioned conditions (further reduction in inflation and a slowdown in the labor market) as unlikely to occur in the near termFor instance, Steven Blitz, the Chief U.SEconomist at GlobalData TS Lombard, argues that the U.S. economy is projected to exhibit a robust growth rate of around 3% in 2025, significantly above the "trend" growth rate of 2%. He contends that this stronger demand could lead to a resurgence of inflation, thereby compelling the Federal Reserve to maintain higher interest rates.

Moreover, James Egelhof, Chief U.S

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Economist at BNP Paribas, suggests inflation may experience a rebound in 2025, influenced by rising tariffs, tightened immigration policies, and relatively loose fiscal policiesHe points to enduring long-term inflation expectations supporting this outlook and confidently predicts that the Federal Reserve will uphold interest rates until midway through 2026.

Aditya Bhave, an economist at Bank of America Global Research, similarly believes the interest rate cut cycle is nearing its endHe interprets Powell's statement as indicative that any rate reductions are unlikely in 2025. Bhave remarks, “If the Fed doesn’t cut in March, it implies there will be no cuts in the first quarter, and the Fed typically avoids making slow adjustments within a cycle.”

Matthew Luzzetti, Chief U.SEconomist at Deutsche Bank, observes that the Federal Reserve is not far from a neutral policy stance, with current interest rates hovering around 3.75%. He emphasizes the need for rates to remain slightly above neutral levels, thus suggesting that the possibility for further cuts this year is minimal.

Despite this consensus among many economists, trading activity in the derivatives market hints at continued expectations for rate cuts later this yearMarket participants generally predict that rate cuts of 25 basis points could occur in June and again in the fallNonetheless, there is also a counter-narrative suggesting that the Fed may raise rates in response to potential inflationary pressures resurfacing.

The derivatives market’s trading behavior indicates a keen interest in the Federal Reserve’s future monetary policy trajectoryWhile the Fed’s recent decision to keep rates unchanged has led many to expect cuts in the latter half of 2025, prevailing market sentiment appears more cautious regarding potential rate hikesAlthough some economists voice concerns about inflation suggesting the need for future rate increases, the broader marketplace sentiment leans towards the belief that the rate cut trajectory is not immediately at an end.

In addition, pricing in the derivatives market signifies a careful approach toward the Fed's 2025 monetary policy guidance

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