Analysts expect the Fed to lower rates again by year-end amid persistent inflation and economic worries
The Federal Reserve is widely expected to cut its benchmark interest rate twice before the end of the year, as policymakers grappled with the dual threats of stubborn inflation and a weakening labor market, according to a recent Reuters poll of 117 economists.
The consensus among surveyed economists pointed to a 25 basis point reduction next week, with another likely in December.
“It would be fair to say approximately half of the current FOMC is more focused on the labor market and the other half on inflation risks,” Ryan Wang, United States economist at HSBC, told Reuters.
“The difficulty for the Fed is whether this job slowdown mainly reflects bigger labor demand versus labor supply. It's harder to be very precise about which factor is the bigger one, and that does have implications for how monetary policy should react to it.”
Financial markets have already priced in two more reductions this year, with traders betting on the Fed’s continued focus on employment stability.
The September rate cut—the first since December—was prompted by signs of a cooling labor market, even as inflation pressures from tariffs persisted.
“The risk is we have more rate cuts next year,” Brett Ryan, senior US economist at Deutsche Bank, said. “The risk of the Fed losing its independence is elevated relative to any prior administration.” Ryan said.
Uncertainty clouds the 2026 outlook
While the near-term path for rates appeared clearer, economists remained deeply divided on where rates would stand by the end of next year.
Poll responses ranged from 2.25%-2.50% to 3.75%-4.00%, reflecting uncertainty around economic growth, inflation, and speculation over who will succeed Jerome Powell as Fed chair in May.
A majority (76%) of economists flagged the risk that rates could be cut too low, raising concerns about the Fed’s independence amid ongoing political pressure.
Lawrence Summers told attendees at the Mortgage Bankers Association event that the Fed is misjudging the economy’s neutral rate, suggesting interest rates may climb instead of decline. https://t.co/n42Ac49SLV
— Mortgage Professional America Magazine (@MPAMagazineUS) October 21, 2025
Delayed data, persistent inflation
A three-week government shutdown delayed key official data on employment and inflation, further complicating the Fed’s decision-making. Private-sector reports suggested modest layoffs and hiring, with the unemployment rate expected to hover around 4.3% through 2027.
ADP revealed that the private sector shed 32,000 jobs in September, while Challenger, Gray & Christmas reported 54,064 job cuts for the month. Hiring plans, meanwhile, have collapsed to the lowest level since 2009.
Meanwhile, inflation was projected to remain above the Fed’s 2% target, with upcoming data expected to show consumer inflation rising to 3.1% in September from 2.9% in August.
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