So far in 2025 the Federal Open Market Committee has held rates steady at 4.25% to 4.5% for its first four meetings of 2025. That’s after last cutting rates in December 2024. Markets don’t see any interest rate cuts coming at the next FOMC meeting this July. However, markets expect that interest rates will be cut this year. A September cut is viewed as likely. Beyond that, cuts in either October or December are possible, with a small chance of cuts at both meetings. Overall, markets expect one to three cuts in 2025.
FOMC policymakers shared their own interest-rate projections on June 18, too. Holding rates steady or two cuts in 2025 were forecast as most likely. Those projections will next be updated on September 17.
That said, many policymakers have emphasized taking a wait and see approach to monetary policy in the coming months as the economic impact of government policy plays out. That may make such interest rate forecasts from policymakers a little less insightful than usual.
For example, Federal Reserve Chair Jerome Powell said to Congress on June 25, “For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
Economic Factors
Policymakers are looking for inflation to return to their 2% annual target. For May, the Consumer Price Index rose 2.4% on an annual headline basis, or 2.8% if food and energy price trends are removed. Since February, inflation has shown evidence of trending to 2%. However, policymakers are watching for any inflationary impact from tariffs. Up to May’s CPI report, tariff-based inflation appears mild and June’s CPI report may be calm too. Yet, policymakers still believe that could change in the coming months, and await the data.
The second half of the FOMC’s core mandate is full employment, in addition to price stability. Generally, jobs data has been robust for 2025 so far. That has meant the FOMC has been in no rush to cut rates, especially as inflation has remained above target. Some policymakers fear that tariffs could cause the job market to weaken, for now, that hasn’t been evident.
Political Factors
Monetary policy is currently complicated by political factors, too. President Trump has been extremely critical of Powell and will nominate his successor to lead the Federal Reserve from early 2026. Trump has called for lower interest rates, in part to reduce the cost of servicing the national debt. Powell has been clear that such statements from Trump have no impact on monetary policy. However, it is unusual for a President to criticize a Fed Chair so repeatedly and publicly.
What To Expect
Interest rates are expected to move lower later in 2025. Perhaps with a first cut for the year in September and then with at least one more cut to follow. This could occur because inflation remains relatively subdued, or perhaps because fears of a weakening labor market surface. The trickiest scenario would come if tariffs proved to be materially inflationary and the jobs market weakened, too. In that case the FOMC would have to choose whether to prioritize supporting jobs or calming inflation and that would not be an easy trade-off. However, for 2025 so far, both jobs and inflation have both trended relatively favorably.