Outlook 2025: Predictions for the FOMC
In 2025, the path of monetary policy remains uncertain as the Federal Reserve grapples with persistent inflation and the potential impact of policy under a second Trump administration. Analysts are split on the number of rate cuts we might see, with projections ranging from one to four.
Steve Skancke, chief economic advisor at Keel Point, described the situation as a tough balancing act. The Fed aims to achieve full employment while containing inflation. Factors such as tariffs can contribute to inflation through immediate price increases and disruptions in supply chains.
Tariffs have been positioned as a means of enforcement, with Skancke noting that past attempts to use incentives were not effective. He believes that imposing a 25% tariff on Mexican goods could push their economy into a recession, leading them to comply with demands.
Looking ahead, some predict that Fed Chair Jerome Powell will not be renominated, and the Fed’s role in the market may diminish in 2025. Wells Fargo’s Darrell Cronk sees President-elect Trump’s tariffs as a negotiating tactic rather than a permanent policy.
Despite projections suggesting two rate cuts in 2025, some experts believe more cuts may be necessary. Ryan Swift of BCA Research anticipates that inflation forecasts are too high and unemployment forecasts are too low, possibly resulting in additional rate cuts.
Seema Shah of Principal Asset Management predicts that the Fed will slow its cutting pace in early 2025, potentially spacing out rate reductions to every other meeting. This approach could lead to a shallower decline in interest rates than initially expected.
While uncertainty remains, experts agree that the Fed will likely take a cautious and data-dependent approach to future rate cuts. Each decision will be influenced by economic data and market conditions, with the goal of maintaining stability and growth in the U.S. economy.
