Analyst: The Federal Reserve may pause the rate-cutting process in early 2025, ignoring inflation data could face liquidation risks

Chief Economist of Bank of America, Stephen Juneau, issued a recent report warning that investors who ignore inflation data may face liquidation risks in 2025. The latest data shows that the CPI increased by 2.7% year-on-year in November and rose by 0.3% month-on-month, up 0.1 percentage points from October; the PPI increased by 0.4% month-on-month in November, significantly exceeding the market's expected 0.2%.

Federal funds futures show a high probability of up to 98% for the Federal Reserve to cut interest rates by 25 basis points next week, but Rick Rieder, Global Fixed Income CIO at BlackRock; Greg Daco, Chief Economist at Ernst & Young; and Oren Klachkin, an economist at Nationwide all predict that due to potential new policies from Trump administration , the Fed may pause its rate-cutting process in early 2025.

The market needs to be wary of three major risks: higher tariff policy, deficit financing tax cuts plan and tightened immigration policy which could keep core PCE inflation high over the next two years. Daco specifically pointed out that although there is almost a "coin toss" chance for rate cuts next week , subsequent rate cuts will slow down significantly as policymakers remain highly vigilant about new government policies.