The Royal Bank of Canada (RBC) has projected that the Federal Reserve will not cut interest rates in January, maintaining the federal funds rate at 4.25%–4.5% throughout 2025.
Key Factors Behind the Prediction
Inflation Trends:
December's CPI growth is expected to edge up to 2.8%, slightly higher than November’s 2.7%, as the decline in gasoline prices narrows.
Core CPI growth is anticipated to slow to 0.2% month-on-month due to moderated increases in rent and other core service prices.
Strong Economic Data:
Recent data, including last Friday’s non-farm payrolls, has outperformed expectations, signaling resilience in the U.S. economy.
Policy Implications
Despite slowing inflation, the robust economic backdrop suggests that the Fed will adopt a cautious approach, holding rates steady to balance inflationary pressures with sustained economic growth. This aligns with RBC’s forecast that no further rate adjustments are likely through 2025.