Wall Street is starting to throw in the towel on another rate cut this year

• A growing chorus on Wall Street sees the Fed unlikely to cut interest rates at all in 2025.
• The red-hot December jobs report prompted a hawkish shift from bank strategists.
• Some strategists say the Fed’s next move might actually be a hike.

Wall Street is starting come to terms with a dwindling likelihood that the Federal Reserve will continue its rate-cutting cycle this year. After a blockbuster jobs report, some see no cuts at all in 2025.

Data released last Friday showed he economy added 256,000 jobs in December, well-above the 155,000 payroll additions economists were expecting. The unemployment rate also unexpectedly declined. It offered the latest sign that the US economy is firing on all cylinders, and therefore might not need further stimulus, at least in the near term.

Bank of America said as much after the report.

“We think the cutting cycle is over,” the firm’s strategists wrote.”Inflation is stuck above target, with upside risks.”

BNP Paribas added it was sticking to its call of no Fed rate cuts in 2025. In a previous note, the European bank said it foresaw a “large inflationary upsurge” stemming from potential tariffs and changes to US immigration policy, which could raise the rise of a “1970s-style long-term entrenchment of elevated inflation.”

“Since then, growth has surprised to the upside, President-elect Trump has held fast to his plans for large tariffs … and the FOMC has made a sharp hawkish pivot. As a result, our Fed stance has become consensus,” the firm’s strategists said in a note on Friday.

Economists have been saying for months that several of president-elect Trump’s policies — like his plan to levy steep tariffs — could end up raising prices for consumers, though Trump has said he would do the opposite in his presidency. Trump levied tariffs in his first term without a significant inflation uptick, but plan this time around is seen as far more wide-reaching.

Deutsche Bank is also calling for an extended pause in the Fed’s cutting cycle. In a note on Friday, the bank referenced its previous forecast that rates would stay around 4.3% through 2025, implying that the Fed funds rate would stay within its current range of 4.25% to 4.5%.

“These data support our view that with growth sturdy, the labor market resilient, and inflation sticky, there may be limited scope for the Fed to cut rates this year,” the firm’s strategists said. “Our baseline remains that the Fed will keep rates on hold in 2025.”

BNP Paribas went as far as to suggest the Fed’s next rate move could be to the upside, especially if labor-market data stays hot.

“The risks to this view are now two-sided, with hikes possible if a soft landing for the US economy moves out of reach,” the bank said of its rates forecast.

Markets, meanwhile, are less convinced of a full pause. They’re currently pricing in a 30% chance that the Fed funds rate will end the year unchanged from its current level, up from 16% before the December jobs report, according to the CME FedWatch tool. Further, investors see a 41% chance of one more 25-basis-point cut by year-end.