Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying

The Federal Reserve made the widely expected move of cutting interest rates by a quarter of a percentage point Wednesday, but of more interest to market participants was the central bank’s more restrictive outlook for monetary policy next year, experts say.

The Federal Open Market Committee (FOMC) wrapped up its regularly scheduled two-day policy meeting on Wednesday by cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, to a target range of 4.25% to 4.50%.

“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the FOMC said in a statement. “Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2% objective but remains somewhat elevated.”

At the same time, the FOMC released its latest Summary of Economic Projections (SEP). Market participants scrutinize the so-called dot plot for clues about the future path of monetary policy.

Recall that the Fed has a dual mandate. In addition to stable prices, the central bank is supposed to support maximum employment. With the lagged effects of restrictive monetary policy showing up in the jobs market, Wednesday’s rate cut was a foregone conclusion.

However, elevated inflation, decent economic growth, rising stock prices and the incoming administration’s proposed tariff policies make forecasting the path of interest rates in 2025 more challenging.

“The actual cut was the least important component of the December FOMC meeting,” writes Jack McIntyre, portfolio manager at Brandywine Global. “When you include the forward guidance components, it was a ‘hawkish cut.’ Stronger expected growth married with higher anticipated inflation – it’s no wonder the Fed reduced the number of expected rate cuts in 2025.”

McIntyre adds that the Fed has entered “a new phase of monetary policy – the pause phase.” The longer the pause phase persists, the more likely market participants will have to equally price a rate hike vs a rate cut. “Policy uncertainty will make for more volatile financial markets in 2025,” the portfolio manager notes.

With the FOMC’s latest rate decision now on the books, we turned to economists, strategists and other experts for their thoughts on what the move means for markets, macroeconomics and monetary policy going forward.

Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Interest rates: the experts weigh in

“Nuanced. This is the only way to describe what the Fed is doing now. The path to their 2% inflation goal was lengthened as expected rate cuts this year and next were reduced. Unemployment is stable at current levels and GDP forecast raised this year while stable in 2025 and 2026. There seems to be a sense from the Fed that they are still too restrictive which puts the employment market at risk while the idea of continued economic growth means they think they should slow down. The question of where ‘neutral’ actually is, remains an open question.” – Steve Wyett, chief investment strategist at BOK Financial

“Good-bye punch bowl. No Christmas cheer from the Fed. Policymakers see higher inflation and lower unemployment in 2024. There is simply no reason to be dovish given that outlook. The easy lifting is done now that rates are no longer clearly restrictive. It’s a logical time to pause. The Fed has engineered a soft landing and now they’re taking off the training wheels. Let’s see if the economy can stand upright or falls over. Attention now shifts from monetary policy to the fiscal policies of the incoming administration. The economy is now in Trump’s hands, for better or worse.” – David Russell, global head of market strategy at TradeStation

“The Summary of Economic Projections is markedly hawkish, with only two projected rate cuts for 2025, signalling deeper concerns over persistent or re-igniting inflation. The Fed seems to have switched back to prioritizing inflation risks over unemployment, readying for a January skip and potentially an extended pause in 2025, if inflationary pressures persist and the economy remains robust.” – Dan Siluk, head of global short duration & liquidity and portfolio manager at Janus Henderson Investors

“The new statement was almost a carbon copy of November’s – a minor edit was made to only one line – but FOMC participants have surprised by halving their expectations for further easing next year to just 50 bps. This was far from a close call; 10 participants agree with the median forecast, while only five think it would be appropriate to ease by 75 bps or more next year. A January pause is now overtly the Committee’s base case, and the revisions cast some doubt over a March easing too, though that remains our central expectation.” – Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics

“The signaling from the Fed was more hawkish than expected with a dot plot forecast of 50 basis points (bps) of easing in 2025 vs September’s 100. FOMC participants maintained the same GDP growth and unemployment forecasts for 2025 but marked up their inflation expectations suggesting more work ahead to reach the 2% target.” – Ronald Temple, chief market strategist at Lazard

“The Fed is going to have to see further inflation progress before it considers cutting policy rates again. We reckon it will see that progress as 2025 unfolds (presuming tariffs don’t interfere).” – Michael Gregory, deputy chief economist at BMO Capital Markets

“As anticipated, the FOMC reduced interest rates by 25 basis points today, completing a full 1% in cuts for 2024. The aggressive policy easing remains surprising, given the economy’s broad resilience, stock market and Bitcoin at record highs, and inflation exceeding 3% for 43 consecutive months – the longest stretch since the early 1990s.” – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

“Today’s rate cut represents an inflection point as the costs of reducing inflation become starker. The Fed is beginning to walk on increasingly thin ice. The last half-point of inflation has proven difficult for the central bank to surpass to achieve its goal of 2%. After months of historically high federal funds rates, the cracks are beginning to show in the job market. Heading into 2025 – with uncertainty looming and a new administration taking office – frontline jobs in government and healthcare are the places to monitor. While both have been resilient employment sectors thus far, decreasing job gains here could point to more serious economic signals in the year ahead.” – Edward Hearn, lead economist at UKG

“While the Fed opted to round out the year with a third consecutive cut, its New Year’s resolution appears to be for a more gradual pace of easing. Reflecting recent stronger data, changes to the FOMC’s inflation and unemployment forecasts were hawkish and the dot-plot now sees just two cuts in 2025. We expect the Fed to opt to skip a January rate cut, before resuming its easing cycle in March.” – Whitney Watson, global co-head and co-chief investment officer of fixed income and liquidity solutions within Goldman Sachs Asset Management

“Markets should be happy that the Fed is taking a measured approach to normalizing interest rates. The Fed knows that services inflation has been stubbornly sticky of late, so they need to let the first series of rate cuts soak, so they signal to markets that they are willing to stop, or even raise rates again, if inflation doesn’t cooperate lower.” – Jamie Cox, managing partner for Harris Financial Group

“The Fed’s updated projections today represented an even sharper pivot than markets had anticipated, slashing their rate-cut forecast to just 50 basis points in 2025. The market’s reaction was immediate and unambiguous: stocks dipped on the news of higher for longer rates, and treasury yields edged higher.” – Jim Baird, chief investment officer at Plante Moran Financial Advisors

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