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No Fed Rate Cuts in 2025? Experts Say It Could Happen
By Pete Grieve MONEY RESEARCH COLLECTIVE
New data could prompt officials to hit the brakes on rate cuts.
Where are interest rates headed this year? The answer could be one that was unthinkable as recently as a month ago: Nowhere. Amid mixed economic data and uncertainty around the president-elect’s proposed tariffs, some analysts are now tempering expectations of multiple cuts in 2025.
In a surprising reversal, Bank of America wrote in a report this week that it now expects the Federal Reserve to keep its benchmark federal funds rate at its current range of 4.25% to 4.5% for an extended period. Previously, Bank of America forecasted two cuts of 25 basis points (a quarter of a percentage point) each in 2025.
The revision came after a couple of recent data releases showed a labor market in better shape — and inflation more stubborn — than economists anticipated. The better-than-expected December jobs report released Friday found that the economy added more than 250,000 jobs and unemployment fell to 4.1%.
On Wednesday, the consumer price index (CPI) for December was released, showing that annual inflation ticked up from 2.7% to 2.9%, which Bank of America economists characterized as “modestly above target” in a new research note. Plus, President-elect Donald Trump’s suggested tariffs on countries like Mexico and China would make prices on a wide array of goods go up if enacted, economists say.
These conditions point to the Fed taking more of a wait-and-see approach. Officials said as much on Wednesday after the CPI release. John Williams, the New York Fed president and voting member of the central bank’s rate-setting committee, said the economy is healthy. Williams added that the two parts of the Fed’s mandate — to support the labor market and to limit inflation from going above the 2% target — have returned to balance.
“Our job is to ensure the risks remain in balance,” he said in remarks at a conference in Connecticut. Inflation is still higher than policymakers want, and Williams said disinflation “will take time, and the process may well be choppy.”
After the strong jobs data for December, Chris Brigati, chief investment officer at financial services company SWBC, said the Fed might hit the brakes entirely. “We may very well see no rate cuts this year,” he said in a research note.
Timeline of recent Fed cuts
The Fed raised interest rates 11 times between March 2022 and July 2023 to fight inflation, bringing rates up to a range of 5.25% to 5.5%. The Fed held interest rates at that level for over a year, announcing a 50 basis point rate cut in September. The Fed has cut rates twice more since then.
Here is the timeline of recent interest rate cuts:
- September: 50 basis point cut
- November: 25 basis point cut
- December: 25 basis point cut
At 4.25% to 4.5%, rates are now a full percentage point lower than the recent high, but it’s unclear how much more cutting the Fed will do. In any event, interest rates aren’t likely to return to the near-zero levels of 2019 anytime soon, if ever. This means Americans will have to get used to rates on mortgages, auto loans, personal loans, student loans and credit cards remaining higher than they were just a few years ago.
How many interest rate cuts will there be in 2025?
In December, Fed officials expected to make two rate cuts in 2025, according to the “dot plot,” which shows where officials think rates are headed. However, at one point in September, Fed officials were expecting four cuts.
Since the release of the last dot plot, the odds of multiple cuts in 2025 appear to have decreased further. According to the CME Group’s FedWatch Tool, the market now expects one rate cut by June, but the probability of an additional rate cut beyond that is closer to 50/50.
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Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete covers trending stories that affect Americans’ wallets on topics including car buying, insurance, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News in Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and he attended the annual Investigative Reporters and Editors conference in 2021. Pete has discussed his reporting in interviews with outlets including the Columbia Journalism Review and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.