Right now, inflation is rising and economies are showing weaker growth. This is making central banks very careful about their next moves regarding interest rates. This month has important meetings from major banks, and everyone is waiting to see what decisions they make and how that will affect the economy for 2025.
U.S. Federal Reserve: Staying Cautious
The U.S. Federal Reserve is likely to keep interest rates steady at 4.25% to 4.50%. They are focusing on mixed signals from the economy. On one side, the Producer Price Index (PPI), which measures price changes, dropped to 0.2%, hinting that prices are easing. However, the Manufacturing PMI shows that production is slowing down, which tells us that factories are struggling.
The job market is sending mixed signals, too. There are plans to hire fewer people next year, the lowest since 2015, with only 769,953 jobs expected to be filled. The ADP report says only 122,000 new jobs were added, compared to 256,000 from the Labour Department’s report. Even though unemployment is at 4.1%, fewer jobs being created leads to uncertainty about the future job market.
On top of that, the national debt is spiraling, with annual interest payments exceeding $1.1 trillion. Proposed tax cuts from the Trump administration are expected to widen the fiscal deficit and might increase inflation risks.
Despite Trump’s suggestion to lower interest rates because of decreasing oil prices, the Federal Reserve remains cautious. We can expect them to keep rates steady but watch closely for changes in inflation and job growth. If inflation increases due to government spending, the Fed might change their stance later in 2025.
European Central Bank: Looking for Rate Cuts
In Europe, the European Central Bank (ECB) is currently holding interest rates at 3.15%. However, due to slow economic conditions, they might reduce rates by 0.25%. Retail sales are only 0.1%, showing consumers are buying less, and industrial production growth is lagging behind expectations.
Inflation increased slightly to 2.4% because of rising oil prices. Also, trade uncertainties with the U.S. are putting pressure on the Eurozone, as they might react to tariffs threatened by Trump. Although the ECB aims for inflation to go back to 2%, they are worried that economic growth will slow down through 2027.
Reserve Bank of India: Focus on Budget and Stability
India’s Reserve Bank is preparing for the upcoming budget focused on capital spending to foster growth, especially since GDP growth dropped to 5.4%, marking the lowest in seven quarters. They aim to create jobs, provide tax relief, and attract foreign investment.
The Reserve Bank has maintained a repo rate of 6.5% throughout 2024. They’re expected to keep it stable because of ongoing inflation worries, especially food prices.
Even with a strong rural demand and government spending, challenges from rising costs and potential trade risks remain. The Indian Rupee is expected to stabilize amid uncertainty in global trade.
Overall, the exchange rate between the U.S. Dollar and Indian Rupee could fluctuate between 86.20 and 86.80. If it drops below 86.20, it might go down to 85.80.
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