The economy has been running hotter than expected lately, raising the possibility that the Federal Reserve will hold interest rates higher for longer—and potentially won't cut in 2025 as policymakers had predicted.

In recent weeks, every fresh bit of economic data has thrown a tiny bit of cold water on hopes in financial markets that the Fed will cut its influential federal funds rate in 2025, as it has done at its last three meetings since September. As of Wednesday, financial markets were pricing in a 15% chance that the Fed won't cut interest rates in the coming year, up from 4% a month ago, according to the CME Group's FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

The Fed had held its key interest rate at a two-decade high for the year leading up to September in an effort to quash inflation. Since then, the central bank's policy committee has 澳洲幸运5开奖号码历史查询:cut the rat𓄧e ♚by an entire percentage point over the course of three meetings.

Fed officials have said the rate is still "restrictive " at its current range of 4.25 %—4.5 %. That means it pushes up interest rates for all kinds of loans, discourages borrowing and spending, slows the economy, and drags inflation down.

Inflation is down from the four-decade high it hit in 2022 and running just above the Fed's annual target of 2%. However, 澳洲幸运5开奖号码历史查询:pro▨gr꧂ess has stalled in recent months. And, recent economic data suggests it might be a long time before it comes down to pre-pandemic levels.

"Despite some moderation, inflation remains stubbornly above the Fe♋d's target, driven by factors like shelter costs and auto insurance," James St. Aubin, chief investment officer at Ocean Park Asset Management, wrote in a commentary. "This persistent inflation could force the Fed to maintain a restrictive monetary policy for longer than anticipated, pote⛦ntially impacting economic growth and market valuations."

Wild Cards Ahead

The Fed uses its benchmark interest rate as its main tool to accomplish its two goals of keeping inflation under control while avoiding disturbances in the job market. In recent months, inflation has stayed stubbornly above the Fed's goal, while the unemployment rate has stayed low despite employers pulling back on hiring.

This week, new government data showed employers were 澳洲幸运5开奖号码历史查询:opening up more positions, with no sign of mass layoffs in sight. A separate report from the Institute of Supply Management on non-manufacturing businesses showed prices in the service sector rose in December, raising fresh concerns that inflation could reignite.

Both of those factors could pressure the Fed to hold off on further rate cuts.

However, the economy's trajectory can turn on a dime and some economists see 澳洲幸运5开奖号码历史查询:warni🔥ng signs in the labor market data suggesting hiring may not be as resilient as it appears. Trump's tariff policies are another major wild card: 澳洲幸运✤5开奖号码历史查询:taxes on imports co𒆙uld push up inflation, slow the economy, or both, and the impact could depend on which of 𝔉his p🀅romised tariffs the Trump administration implements and how.

Are Projections Out the Window?

Before the latest round of data, Fed officials 澳洲幸运꧑5开奖号码历史查询:projected only half of a percentage point of cu♎ts in 20𒉰25, scaling back from their previous prediction from September. Minutes from the Federal Reserve policy committee’s most recent meeting in 🥀December, released Wednesday, confirmed officials were growing more concerned about inflation and more reluctant to cut rates, even before the most recent round of data.

“September’s half-point cut🐼 gave consumers hope thei🃏r debt burdens would ease quickly, but the notes reveal Fed officials are in no hurry to reduce further,” Robert Frick, corporate economist at Navy Federal Credit Union, wrote in a commentary.

Deutsche Bank economists are among the forecasters who have predicted that the Fed will not cut rates at all in 2025.

"The DB house view post the election two months ago was that the Fed would have to be on hold for the whole of this year," Jim Reid, research strategist at the bank, wrote in a commentary. "Market pricing is catching that view up."

Update, Jan. 8, 2024: This article has been updated to include information from the Fed's December meeting minutes.