Anticipated Actions of the Fed in Upcoming Gathering
Federal Reserve Prepares for Gradual Interest Rate Cuts in Late 2025
The Federal Reserve is expected to implement two gradual interest rate cuts in the remainder of 2025, according to a consensus among experts. This decision is primarily driven by the anticipated cooling of inflation and moderation of economic growth, while carefully considering labor market strength and tariff impacts.
Bill Adams, the chief economist for Comerica Bank, believes that the Fed can afford to wait and see how tariffs and tax cuts play out before making rate decisions. Priscilla Thiagamoorthy, a senior economist at BMO Economics, predicts that the Fed will wait on the sidelines for the July and August CPI reports to better assess the tariff impact on consumer prices before cutting interest rates in September.
The Fed's own Summary of Economic Projections anticipates a median federal funds rate of about 3.9% by the end of 2025, implying roughly two 0.25% rate cuts from current levels around 4.25%-4.50%. Recent FOMC meetings show some dissent, with two members advocating an immediate 0.25% cut, but the Committee as a whole has held rates steady.
Inflation remains somewhat elevated but is expected to cool gradually, partly influenced by the pass-through effects of tariffs. The Fed regards these as a largely temporary price level shift rather than a persistent inflation driver. Experts note that the Fed will closely monitor the labor market, as a weakening labor market could trigger larger or earlier rate cuts, while solid employment may lead to slower adjustments.
Futures markets currently price about a 40% chance of a September rate cut, though some analysts estimate the probability closer to two-thirds. The timing and size of these cuts hinge on data about inflation trends, tariff effects, and especially labor market conditions—all evaluated within the Fed’s dual mandate framework.
The Fed Chair, Jerome Powell, may be under increasing pressure from the White House to lower interest rates later this month, but a dovish move from the central bank is likely months away. Chris Zaccarelli, the chief investment officer for Northlight Asset Management, states that if inflation is staying in check, then the Fed can potentially cut interest rates as early as September, but if subsequent inflation reports show a different story, then the Fed may have to stay on hold even longer.
The FOMC has held the federal funds target rate steady at 4.25% to 4.50% since its December meeting. The market gives a 95% chance to the Fed standing pat when it meets in late July. Rick Rieder, BlackRock's chief investment officer of global fixed income and head of the BlackRock global allocation investment team, believes that the Fed will hold off from a policy rate cut until its September meeting at the earliest.
Gina Bolvin, the president of Bolvin Wealth Management Group, suggests that the Fed's road back to 2% inflation won't be smooth and gives the Fed reason to pause before cutting rates. The Fed has a dual mandate, which includes maintaining stable prices and supporting maximum employment.
In summary, the Federal Reserve is preparing for a cautious, gradual easing of interest rates in late 2025, likely amounting to two quarter-point cuts. The timing and size of these cuts hinge on data about inflation trends, tariff effects, and especially labor market conditions—all evaluated within the Fed’s dual mandate framework.
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