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First, December’s payrolls report on 10 January will be important to see if the US will be able to achieve a soft landing in 2025. The chart below shows unemployment has gradually increased from five-decade lows of 3.4% in 2023 to a still low 4.2% now. If December’s data shows unemployment remains stable, then the risks of the US falling into recession this year will continue to be low to the benefit of risk assets.
Source: Bloomberg, Bank of Singapore
Second, December’s consumer price index (CPI) on 15 January will show whether inflation is still on track to reach the Federal Reserve’s 2% target. As the next chart shows, core inflation remains higher at 3.3% as services costs continue to rise by 4.6% a year.
Source: Bloomberg, Bank of Singapore
Third, Donald Trump’s inauguration will be held on 20 January. The new president has already promised steep tariffs, immigration crackdowns, tax cuts and deregulation. Trump could start initiating his new policies on his first day in office through executive orders – except for changes to the US fiscal budget that requires Congressional approval.
Last, the FOMC will conclude its first meeting of the year on 29 January. After December’s hawkish meeting – when the Fed cut its fed funds rate for the third meeting in a row to 4.25-4.50% but signalled it would slow down its pace of easing – we expect the Fed will leave interest rates unchanged at this month’s meeting.
We think January’s four key US events will have the following implications. We expect December’s payrolls will slow from November’s gains of 227,000 but unemployment is likely to stay low at 4.2%. The jobs report should thus support our view that the US economy will achieve a soft landing – to the benefit of US equities – with GDP growth slowing from almost 3% last year to a still solid 2% this year.
In contrast, December’s CPI may show services inflation remains sticky, keeping overall inflation well above the Fed’s 2% target. We think the Fed is only likely to cut interest rates once or twice more in 2025 to around 4.00%. We therefore stay cautious on duration, forecast 10Y UST yields to trade as high as 5.00% and continue to favour the USD.
This article was first published by Bank of Singapore on 2 January, 2025. The Opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of OCBC Private Bank or its affiliates.
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