The central bank is now seen reducing rates again in September at the earliest, economists say
As the U.S. navigates an uncertain economic landscape shaped by tariff policies and unresolved trade talks, most economists believe the Federal Reserve will maintain its current interest rate stance well into the second half of 2025.
The July 9 expiration of a temporary 90-day pause on new tariffs—announced back in April—has done little to ease anxiety among forecasters. With major negotiations still ongoing and economic indicators pointing in mixed directions, the Fed is expected to proceed cautiously.
Adding to the uncertainty is the looming impact of a large tax cut package passed by the House of Representatives, which could significantly increase bond issuance and worsen the federal debt burden. This fiscal backdrop has dampened expectations for any imminent monetary easing.
Labor market figures released last Friday offered no signs of deterioration, reinforcing expectations that the Fed will hold interest rates at their current level of 4.25% to 4.50% at its upcoming June 17–18 meeting. That view was shared by 103 out of 105 economists polled by Reuters between June 5 and 10.
A narrow majority—59 of the 105 economists—foresee a rate cut in the third quarter, most likely in September, in line with current market pricing. But that outlook remains unchanged from the previous month, suggesting that the central bank’s stance remains firmly cautious.
US Treasury yields rose sharply after a stronger-than-expected May jobs report, tempering investor expectations for Federal Reserve interest rate cuts this year. The 10-year yield climbed to 4.46%.https://t.co/qef1EXJZhB
— Mortgage Professional America Magazine (@MPAMagazineUS) June 6, 2025
“As long as the labor market looks fine, we expect the FOMC to continue to stay on hold, and use rhetoric to bolster their inflation-fighting credibility. Until there is a cost, why signal otherwise?” Jonathan Pingle, chief U.S. economist at UBS, told Reuters.
“At the moment 'grey area' seems more 'charcoal'... the Committee is facing a substantial amount of uncertainty."
Much of that uncertainty stems from the administration’s tariff policies, which have pushed trade tensions higher. Recently, aluminum and steel tariffs were doubled to 50%, fueling fears of entrenched inflation. U.S. officials are in discussions with their Chinese counterparts in London, but a comprehensive agreement remains elusive.
Consumer expectations suggest inflation pressures could persist for years, while professional forecasts see inflation remaining well above the Fed’s 2% goal until at least 2027. Still, nearly half of economists polled expect the Fed to hold off on rate cuts until the final quarter of 2025 or beyond.
The outlook for GDP growth remains muted. Following a 0.2% contraction in the most recent quarter—due largely to trade imbalances—growth is projected at just 1.4% for 2025, down sharply from 2.8% last year. A modest 1.5% gain is expected in 2026, with no significant change from last month’s estimates.
As inflationary pressures persist and fiscal stimulus intensifies, the Fed appears in no rush to loosen monetary policy—especially when economic data offers little urgency for action.
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