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US Federal Reserve holds fire on rate cuts as inflation shadows US economic outlook

The United States Federal Reserve is expected to delay interest rate cuts until December 2025, despite recent signs of cooling economic activity and moderating inflation. According to ING's latest macroeconomic analysis, while progress is being made toward the 2% inflation target, renewed cost pressures from tariffs and energy prices are likely to keep the central bank cautious for now.

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With the next Federal Open Market Committee (FOMC) meeting scheduled for 18 June, ING's Chief International Economist James Knightley and Regional Head of Research Americas Padhraic Garvey, CFA predict the Fed will hold its current policy steady, keeping the federal funds rate at 4.5%. 'We expect the Fed to remain on hold on 18 June and see the first rate cut in December,' the analysts wrote.

This economic stance has implications for the B2B interior design and furniture industry, particularly in the commercial and residential sectors where interest rates significantly affect client investments, mortgage conditions, and consumer confidence.

A complex policy backdrop
While inflation has recently shown more benign month-on-month data, ING warns this could be short-lived. Tariff policies and a sharp rise in energy prices, partly linked to geopolitical instability, are expected to exert upward pressure on prices in the months ahead. As the Beige Book noted, 'there were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial.'

Simultaneously, business sentiment has taken a hit. 'Comments about uncertainty delaying hiring were widespread,' the Beige Book observed, underscoring risks to growth. ING highlights that softer consumer confidence and labour market concerns could reduce discretionary spending, including in housing and interiors.

A slow return to easing
Knightley and Garvey see a December move, potentially a 50 basis point cut, as more likely than a September start. 'We don't disagree with the market pricing of 50bp of cuts this year, but rather than 25bp moves in September and December, we are favouring a 50bp move in December followed by three 25bp cuts in 2026.'

In support of this view, they cite signals such as negative rent growth, softening wage inflation, and slowing employment momentum, factors that could ease service-sector inflation over time. 'Housing accounts for around 40% of the core CPI basket by weight and that process will help inflation to return to 2% in 2026,' they add.

Liquidity questions ahead
In addition to rate policy, Chair Jerome Powell may face scrutiny over liquidity management at the upcoming press conference. ING anticipates questions regarding recent comments by Senator Cruz, who suggested the Fed should stop compensating banks for holding excess reserves, a move ING calls "un-practicable, and potentially unworkable."

Such a policy shift, ING warns, could undermine the Fed's ability to manage the funds rate effectively, impacting financial conditions across sectors.

As the Fed navigates through inflation pressures and economic headwinds, industries tied to interest-sensitive markets, including interior design and furniture, may need to prepare for a slower return to a low-rate environment.

More information:
ING
www.think.ing.com

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