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Summary of UBS Global Research: US Economic Perspectives (January 29, 2025)

At the January Federal Open Market Committee (FOMC) meeting, Federal Reserve Chair Jerome Powell reinforced the message from December, emphasizing no need for urgency in adjusting policy rates based on current data. The Fed is monitoring inflation data for more progress toward the 2% target or signs of weakness in the labor market before considering rate cuts.

Inflation remains elevated but lacks sustained movement toward 2%, and employment data has not yet provided a compelling case for action, such as a March rate cut. The bar for resuming reductions is higher, requiring clearer evidence of declining inflation or favorable labor market changes. Core inflation is expected to continue trending lower, with potential downward revisions to employment figures.

Balance sheet runoff continues, with policy now considered "meaningfully restrictive" due to abundant reserves and high funds rates exceeding the neutral level. No substantial shifts in FOMC guidance were observed, as planned, with the dual mandate reviewed but inflation targeting confirmed unchanged.

The upcoming Trump administration introduces uncertainty, but the Fed avoided direct commentary, focusing on data-dependent decisions and the risk of overreacting to short-term events like tariffs. Market expectations may overstate the Fed's stance, given the lack of hawkish innovations in communications.

Economic indicators suggest resilience in the economy, with decisions centering on maintaining current policy or waiting for further data. Projections indicate minimal changes in rate paths, with no major shifts in the near term.

US Economic Perspectives Summary