By François Rimeu, Senior Strategist, Crédit Mutuel Asset Management

Barring a major surprise, the Federal Reserve (Fed) is expected to keep its monetary policy unchanged at its January meeting. Economic growth remains solid, and the unemployment rate is still low, while inflation continues to run above the 2% target.

Our expectations:

- The Fed is likely to maintain the federal funds rate in the 3.50% to 3.75% range, a level positioned in the upper part of the neutral zone, in line with the institution’s latest projections published in December.
- The statement should remain broadly unchanged, still stressing data dependency. We do expect, however, the removal of the mention that downside risks to employment have risen, in line with a more stable labor market.
- Jerome Powell is expected to adopt a cautious and flexible tone. The resilience of economic activity contrasts with more nuanced indicators from the labor market, which supports the idea of maintaining the current stance in the short term. In summary:

The decline in the unemployment rate observed in December should ease the Fed’s concerns regarding the labor market, despite a sharp slowdown in job creation. After a cumulative 75 basis points of rate cuts in the second half of 2025, the Federal reserve is likely to act cautiously before making additional adjustments, especially as inflation data remain distorted by the shutdown. The timing of rate cuts will continue to depend on the joint evolution of the labor market and inflation: a rapid deterioration in the labor market could prompt earlier easing, while developments broadly aligned with the Fed’s expectations, alongside persistently elevated inflation, would delay further reductions.