Daily Spotlight: Changes to Fed Funds Outlook

Argus

•

Feb 14, 2025

Summary

Based on persistent pricing pressures at both the consumer and producer levels, we are adjusting our outlook for Federal Reserve activity in 2025. We now look for two rate cuts in the second half of the year, versus our prior forecast for three. Two recent inflation reports both indicated that overall pricing pressures remain well below the peak rates in summer 2022, but also confirmed that inflation remains above the Fed's target of 2.0%. Let's first look at the Consumer Price Index. The news here generally was not good, as the annualized number ticked higher from last month (3.0% versus 2.9% and 2.7% two months ago). According to the latest CPI report, the core inflation rate (ex-food and energy) also ticked higher, to 3.3% from 3.2% the prior month. Transportation Services and Shelter costs continued to increase at high rates, leading the overall index higher. Food away from home also was a pricing issue. The other inflation report was the Producer Price Index. PPI measures pricing trends farther up the supply chain, at the manufacturing level. Here, the news was also generally negative. The PPI final demand annual rate through January was 3.5%, compared 2.1% in September and 1.0% in January 2024. PPI Intermediate demand rates were substantially higher, in the 6%-9% range. We expect pricing pressures to again ease as the housing market cools