As inflation remains unexpectedly stubborn, discussions are prevalent regarding the conclusion of the Federal Reserve's rate-cutting cycle. Initially, the market anticipated aggressive cuts in rates, with expectations of a decrease to 3% by 2025. However, current projections suggest only one or two cuts at most. Notably, the effective federal funds rate (EFFR) and the two-year Treasury note have reached parity for the first time since mid-2022, indicating a market consensus that the rate-cutting phase is nearing its end without any hike projections. Factors influencing this shift include the resolute labor market and an adjustment among Federal Open Market Committee (FOMC) members that now view inflation risks as skewed to the upside. Despite these hawkish inclinations, some FOMC members, like Governor Waller, still advocate for potential cuts depending on evolving economic conditions, suggesting that 2025 may witness fluctuating investor sentiment between hawkishness and dovishness. Investors are thus faced with the challenge of navigating these shifts in monetary policy expectations.

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