What Markets Forecasts For Interest Rates In 2025

Published: Sunday, June 15, 2025 at 9:21 am

Federal Reserve Expected to Cut Interest Rates in 2025, But Timing Uncertain

The Federal Reserve, led by Chairman Jerome Powell, is anticipated to cut its benchmark interest rate in 2025, according to market forecasts. The current rate, set at 4.75%-5%, is expected to be reduced by between one and three times next year. However, the exact timing of these cuts remains uncertain.

The CME FedWatch Tool suggests the first cut may not occur until the fall. The Federal Open Market Committee (FOMC) is likely to maintain the current rates in June and potentially July. This could lead to the initial rate reduction in September, with a possible second cut in December.

FOMC officials have adopted a cautious approach, emphasizing that government policies, including tariffs, will significantly influence interest rate decisions. Economic data has shown a stable unemployment rate, hovering between 4.0% and 4.2% for the 12 months leading up to May 2025. Inflation, however, remains a key consideration. Headline inflation is currently at 2.4% as of May 2025, and core inflation, excluding volatile food and energy prices, is at 2.8%. Both figures are above the FOMC's 2% annual inflation target.

Federal Reserve Governor Adriana Kugler noted that progress in lowering inflation has slowed since last summer. The FOMC's preferred inflation gauge, based on personal consumption expenditures (PCE), grew at a 2.1% annual rate in April. Core inflation, a key indicator of future inflation, was at 2.5%. The FOMC is likely to wait for sustained, lower inflation before cutting rates.

Tariffs remain a wildcard. While recent economic reports haven't shown a significant impact from tariffs, policymakers anticipate they could raise prices. The extent to which these costs will be borne by importers, exporters, or consumers is still unknown. Anecdotal evidence suggests potential price increases from tariffs in June and July, which may not yet be reflected in reported data.

With five FOMC meetings remaining in 2025, any rate changes are expected later in the year. Modest interest rate cuts are considered likely, assuming the job market remains strong and inflation trends towards the 2% target. Unexpected economic weakness could lead to larger and earlier rate cuts.

BNN's Perspective: The Federal Reserve is walking a tightrope. Balancing the need to curb inflation with the potential impact of government policies, particularly tariffs, requires careful consideration. The current wait-and-see approach seems prudent, but the Fed must remain agile and ready to adjust its strategy based on evolving economic conditions.

Keywords: Interest rates, Federal Reserve, FOMC, inflation, tariffs, economic data, unemployment rate, monetary policy, rate cuts, Jerome Powell, Adriana Kugler, CME FedWatch Tool, core inflation, PCE, government policies, economic outlook

Full Story