Preface

As the world closely watches the economic strategies of the U.S. Federal Reserve, American banking voices predict a surprising stance under Jerome Powell's leadership. While many anticipated potential rate cuts by December, American Bank articulates a more cautious approach, suggesting no further rate reductions during Powell's tenure. This forecast pivots on the Fed's October decision and Powell's subsequent remarks which highlighted market uncertainties affected by the ongoing government shutdown.

Lazy bag

American Bank foresees no rate cuts by U.S. Fed until Powell’s term ends, differing from market expectations.

Main Body

In October, the Federal Reserve executed a rate cut, leading to widespread speculation about future monetary policy decisions. However, Jerome Powell, the Fed's chair, quickly advised caution, dampening expectations of another rate cut in December. As a result, American Bank predicts that no rate cuts will occur throughout Powell's tenure, a notion considered aggressive on Wall Street, contrasting the broader market outlook.

The protracted U.S. government shutdown exacerbates decision-making, as it causes delay in critical economic data releases such as CPI, PPI, and retail sales figures—tools essential for policy adjustment analysis. With these regular data streams absent, alternative economic indicators become pivotal for the Fed's decision-making process.

Alternative metrics project a nuanced U.S. economic landscape. Although the labor market shows signs of cooling, no drastic deterioration indicates a reason for immediate concern. American Bank's viewpoint aligns with Powell's metaphor of ‘driving through fog’. Without clear visibility from data, proceeding cautiously is prudent. Communication from Fed officials also mirrors this cautious sentiment, often erring on the hawkish side rather than dovish.

Alternative employment data reveals intricate labor market trends. Data from American Bank's proprietary ‘Labor Data Heatmap’ indicates a slow-emerging increase in market slack without significant disruption. Job seekers face a challenging environment, with hiring rates, as shown by the Chicago Fed’s estimates, cooling for consecutive months. Nevertheless, low layoff rates somewhat balance the weak hiring appetite. In contrast, wage growth shows a marginal slowdown, alleviating inflationary pressures.

Fed official statements resonate with this caution. Notably, hawkish tones from officials such as Hammack and Logan reflect inflationary concerns. Even typically dovish officials, like Daly, have not vocally supported additional cuts, strengthening American Bank's outlook.

Based on current economic and policymaking contexts, American Bank revises its core predictions. It suggests federal funds rates will remain stable at 3.75-4.0% until a new Fed chair might implement reductions in 2026. Future inflation, propelled by tariffs, may remain high, while employment markets gradually soften. With fiscal stimuli and lessening uncertainties, economic growth should align with trend levels, with an estimated GDP growth of 1.8% in 2025.

Key Insights Table