Fed Decision: What Investors Need to Know

Critical Developments Ahead of the Fed Decision

The Fed decision, which will be announced today at 22:00, may create significant repercussions in the markets. Although it may seem like a routine interest rate meeting, the real importance of this meeting stems from the power dynamics behind the messages that will be delivered. In this meeting, not only interest rates but also the institutional identity and independence of the Fed will be put to the test.

Interest Rates May Remain Unchanged

The Fed lowered the policy rate by 25 basis points in December, bringing it to a range of 3.50%-3.75%. Current market data indicates that the likelihood of an interest rate cut in this meeting is around 3%. For March, this probability is about 16%, creating a perception among investors that the Fed should maintain a cautious stance.

Strong but Troubled Economy

While economic growth figures are encouraging, there are some underlying threats. The Atlanta Fed's GDPNOW model forecasts growth above 5% for the fourth quarter of 2025. However, official data is expected to show an annual growth rate of 2.4% by the end of the year. Consumer spending may carry growth into the second half of the year, but it cannot be said that the Fed will take an urgent interest rate cut.

Uncertainties in the Labor Market

Although the unemployment rate fell from 4.5% in November to 4.4% in December, the labor supply has significantly contracted. The low levels of unemployment benefit claims indicate the existence of a strong labor market. However, the slowdown in employment and the decreasing pace of job creation create a balancing problem for the Fed that keeps inflation risks alive.

Inflation Data and Rate Expectations

The inflation data for December was measured at 2.7% year-on-year. However, this figure could actually be higher due to the inadequate calculation of rental data. Considering the Fed's target inflation rate of 2%, the current situation is causing the Fed to act cautiously regarding interest rate cuts.

Critical Press Conference

The press conference of Fed Chairman Powell will be a decisive moment for investors. Powell may make important statements regarding the Fed’s independence and how it is affected by political pressures. The decision announced this evening may not change interest rates but could provide messages that shape the future of the Fed.