DWS: The probability of a Federal Reserve rate increase remains low.

DWS chief US economist Christian Scherrmann stated that the Fed was anticipated to maintain interest rates unchanged at its January FOMC meeting. Fed chair Powell described the slight changes in the press statement, such as the removal of the phrase "further progress toward price stability", as a clean-up rather than a signal. Central bankers seem to be playing for time. DWS had anticipated that the last mile of deflation would take time, and the latest data on inflation and the labor market supported a more gradual easing. The political uncertainty around tariffs, spending, and immigration could push prices higher, so a cautious and data-dependent approach is sensible. Central bankers are waiting for further political guidance to adjust monetary policy, which in turn limits forward guidance. Looking ahead, Christian Scherrmann expects inflation data to support, at least in the first quarter. This leaves room for another cut in March or even June, but the risk is certainly tilted towards less easing rather than more, though the Fed itself seems able to respond easily as it has already cut rates by 100bp. However, DWS still sees the likelihood of a hike as small.