Nomura Predicts Fed Will Pause Rate Cuts

By Siddarth S
(Reuters) – The U.S. Federal Reserve is no longer expected to cut interest rates at its December policy meeting, according to Nomura, marking the first global brokerage to indicate a pause in the central bank's rate-cutting cycle following Donald Trump's election victory.

Nomura has revised its expectations, anticipating only two 25-basis-point (bp) rate reductions at the Fed's March and June meetings in 2025, maintaining its Fed funds rate projection at 4.125% through next year.

Currently, the Fed's benchmark overnight interest rate stands in the range of 4.50%-4.75%. In 2024, it has already cut rates by 75 bps.

While other major brokerages like Goldman Sachs and J.P. Morgan predict a 25-bp cut next month, Nomura indicates that the Fed's tightening cycle may halt due to recent hawkish remarks from policymakers, amidst ongoing economic growth and the likelihood of sustained high inflation. This shift follows the Fed's growing reluctance to cut rates in light of major political changes after Trump's election.

Wall Street is grappling with potential inflationary pressures as the President-elect advocates for tax cuts, higher tariffs, and stricter immigration policies. Nomura cautioned that tariffs could lead to increased inflation by summer, suggesting risks may lean towards an earlier and more extended pause in rate cuts.

Recent data showed that U.S. consumer prices rose 2.6% in the year ending October, exceeding the Fed's target of 2% but aligning with economists' forecasts. Traders now perceive a 34.7% chance of the Fed pausing rate cuts in December, based on CME Group's FedWatch Tool.

Nomura also predicts a prolonged pause in U.S. rate cuts until March 2026 following the possible reduction in June.