According to a report by Golden Ten, Barclays Bank stated that one of the factors that may keep US interest rates high is US inflation policy. At the December meeting, some FOMC participants clearly began reflecting their expectations for tariffs in their inflation forecasts. Furthermore, even among those who have not adjusted official forecasts, many now believe that the balance of inflation risks tends to be upward. Although Powell did not explicitly answer to what extent the Federal Reserve tends to view it through tariff related price level increases, we believe that continuing to cut interest rates by the Fed will be a challenge, especially in the context of rising inflation rates in recent years, as tariffs are expected to exacerbate inflation in the second half of 2025. We expect the Federal Reserve to pause interest rate cuts after June next year and resume them around mid-2026 after the inflationary pressure caused by tariffs dissipates. In our benchmark, we expect two 25 basis point rate cuts in 2026, with a terminal interest rate of 3.25-3.50%.
