Nomura Securities has announced it no longer expects the Federal Reserve to cut interest rates in its December policy meeting. This positions Nomura as the first major global brokerage to suggest a pause in the Fed's rate-cutting cycle following Trump's election victory.
The firm now forecasts that the Federal Reserve will implement only two more rate cuts of 25 basis points each, likely occurring in March and June of 2025. The company's forecast for the federal funds rate remains steady at 4.125% through next year.
Currently, the Fed's benchmark overnight rate is between 4.50% and 4.75%, having been cut by 75 basis points so far this year. In contrast, other global brokerages, including Goldman Sachs and JPMorgan, continue to anticipate a 25 basis point rate cut next month.
Nomura suggests that the Federal Reserve is unlikely to rush into further rate cuts, especially since economic growth continues and inflation might increase. Recent hawkish remarks by policymakers further indicate that the Fed plans to pause its tightening cycle next month.
The Federal Reserve has been hesitant about rate cuts following Trump's presidential election win, which marks a substantial political shift. Wall Street is now trying to absorb potential inflationary pressures for the coming year due to the president-elect's potential policies, such as tax cuts, tariff hikes, and stricter immigration measures.
Nomura highlighted in a report last week that tariffs could elevate real inflation by next summer, with a significant chance that the Fed will pause rate cuts sooner and for an extended period. Recent data showed a 2.6% year-over-year increase in the U.S. Consumer Price Index (CPI) through October, surpassing the Fed’s target of 2% but aligning with economists' expectations.
According to the CME Group's FedWatch tool, traders now perceive a 34.7% chance that the Federal Reserve will pause its rate-cutting cycle in December. Nomura anticipates that after a possible rate cut next June, the Fed will likely hold off on further rate reductions until March 2026.
