Will Interest Rates Go Down in January 2025: CME FedWatch

Okay, let's cut to the chase: It's highly unlikely that interest rates will go down in January 2025. While the idea of lower rates is definitely something many of us are hoping for, the Federal Reserve (also known as the Fed), seems to be playing a cautious waiting game for now. They've made it pretty clear, especially through their actions and comments at the Federal Open Market Committee (FOMC) meetings, that they're in no rush to cut rates right away. They want to be absolutely certain inflation is firmly under control before they start easing up on the pressure.

Will Interest Rates Go Down in January 2025? A Look Ahead

The Fed's Balancing Act: Inflation vs. Economic Growth

I've been closely following the Fed's moves, and frankly, it's a tricky situation they're in. They’re trying to walk a tightrope. On one hand, they want to bring inflation down to their 2% target, which is a good thing for all of us because high prices hurt our wallets. On the other hand, they don't want to slow down the economy too much, which could lead to job losses. It's a delicate balancing act.

Think of it like this: imagine you're driving a car. You want to slow down (inflation), but you don't want to slam on the brakes and cause an accident (a recession). The Fed is trying to find that sweet spot, gradually applying the brakes without bringing everything to a screeching halt.

Why January is Probably a No-Go for Rate Cuts

Here's why I believe we won't see a rate cut in January 2025:

• They've already done some easing: The Fed believes that they've already lowered interest rates sufficiently to account for the recent disinflation that we've seen. In simple terms, they feel they’ve already helped out a bit, and don't want to get ahead of themselves.
• Inflation is still sticky: While inflation has come down from its peak, it's still above the Fed's 2% target. And recent data has shown that it might be accelerating slightly. That means the Fed wants to be absolutely certain inflation is truly under control before considering any more cuts. This is an understandable fear, as inflation that goes out of control is far more difficult to manage, than an inflation that is a little high but controllable.
• They want to see more data: The FOMC is like a detective, looking at all the clues before making a decision. They need to see more data on inflation, especially in the January reports, and on unemployment before they make their next move. They're very closely watching for trends rather than just one-off figures.
• A gradual approach: Several Fed members have indicated they want to take a more measured approach to rate cuts going forward. The days of aggressive rate hikes or cuts are likely behind us. They've made it clear they’re easing “more gradually,” which is their way of saying they're taking it slow and steady.

What the Experts Are Saying (and What I Think of That)

Market experts, especially those who are closely watching fixed income markets, seem to be aligned with this view. According to tools like the CME FedWatch, the likelihood of the Fed holding rates steady in January is really high. This is based on the trading of 30-Day Fed Funds futures prices, which basically show what big investors expect to happen.

Now, while I do pay attention to what the experts say, I also trust my own gut. And based on what the Fed has been saying, especially what’s been coming from Fed Governor Lisa Cook, who said, “there is still further to go before reaching our inflation target of 2 percent,” it makes sense they'll be cautious in January.

What Could Change Things

Of course, things could change. Here are some scenarios that could make the Fed change its mind and cut rates sooner:

• A significant drop in inflation: If inflation data suddenly shows a big drop and consistently moves towards that 2% target, that would definitely encourage the Fed to act.
• A weakening job market: If we see unemployment numbers start to rise quickly, that could prompt the Fed to cut rates to try and boost the economy and safeguard jobs. The job market has been fairly stable, which, I believe, is one of the reasons why the Fed is not feeling compelled to cut rates sooner.
• Unexpected events: Sometimes things happen that no one sees coming, like a big geopolitical event or a huge shock to the financial markets. These kinds of things could force the Fed to change its plans quickly. But I don't think anything like this will happen in the next 4-5 months

The Likely Scenario: Cuts Later in 2025

Even though I don't see a January rate cut happening, the overall feeling is that rate cuts are coming in 2025. The market seems to be expecting a cut sometime in the first half of the year, with March or July being two possible points on the calendar.

Key Factors That Will Impact Rate Cuts

Here's a breakdown of the factors the Fed is monitoring, and which will guide their next moves:

• Inflation Data:
  • What to watch: The Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index. These reports give us a picture of how fast prices are rising.
  • What it means: Lower inflation means the Fed can be more confident in cutting rates.
  • My thoughts: While we've seen disinflation recently, I am cautiously optimistic about seeing further reductions.
• Employment Data:
  • What to watch: The unemployment rate, job creation numbers, and wage growth. These data points show how strong or weak the job market is.
  • What it means: A weaker job market may spur the Fed to cut rates to prevent further job losses.
  • My thoughts: The job market has surprised with its resilience, but this is always an indicator that can change very quickly. So I’ll be closely following this one.
• Economic Growth:
  • What to watch: Gross Domestic Product (GDP) growth. This data shows how fast the overall economy is growing.
  • What it means: Slower economic growth could make the Fed more open to cutting rates to stimulate the economy.
  • My thoughts: This is a difficult metric to predict as it’s often revised, but a big slowdown could definitely impact the Fed's decisions.

The Timeline

Here's a rough timeline for what to expect:

Date	Event	What to Watch For
January 29, 2025	Next FOMC Meeting on interest rates	Very unlikely to see rate cuts here. Keep an eye on the Fed’s commentary though
January/February 2025	Release of January Inflation and Employment Data	Will give a much better idea if we can expect rate cuts in the coming months
March 2025	Next FOMC Meeting.	Perhaps a likely window for rate cuts, depends on the data released before the meeting.
Mid-2025	Potential for further rate cuts.	If inflation continues to fall, it's quite likely to see a rate cut at this point in the year

A Personal Take: Why This Matters to All of Us

As someone who pays attention to these things (and also wants to make sure I get the best deal when buying a car or paying my credit card bill), I know this stuff can seem really complex, but at the end of the day, it affects all of us. Lower interest rates can mean lower borrowing costs for things like mortgages and car loans, which will directly affect our monthly bills and also impact how businesses will invest and grow.

Final Thoughts

In conclusion, while the prospect of lower interest rates is certainly appealing, we shouldn't expect them in January 2025. The Fed is playing it safe and taking a cautious approach. They are watching the data closely and are prepared to act when they feel confident in doing so. The important thing for us is to stay informed and keep our eyes on the latest economic reports. I'll be doing the same, and will be back with new articles to keep you up to date!