Why the Fed May Be Done Cutting Interest Rates—Once and for All

The Federal Reserve’s recent meeting has set off a flurry of discussions among economists regarding the future of interest rates in the U.S. Following Fed Chair Jerome Powell’s post-meeting press conference, some experts believe that the cycle of interest rate cuts is over, with no further reductions anticipated through 2025. Others, however, are maintaining their expectations for potential cuts in the near future.

Current Standing of Interest Rates

After the central bank convened on Wednesday, Fed officials decided to keep interest rates steady at a range between **4.25% to 4.5%**. This decision marks a pause in a series of rate cuts that had previously shaped economic policy discussions. In December, Fed officials had indicated two potential quarter-point cuts were on the table for 2025, but the changing economic landscape seems to have shifted those expectations. Powell’s statement that they are in “no hurry” to cut rates indicated a cautious approach moving forward.

Conditions for Future Cuts

Chair Powell specified that the Fed wishes to see either further progress on inflation or a weakening job market before considering additional cuts. This leaves many economists projecting that the conditions necessary for cuts might not materialize in the near future. Steven Blitz, chief U.S. economist at GlobalData TS Lombard, believes that economic growth will remain robust at **3% annually**, which would likely keep inflation on the rise and limit the Fed’s inclination to cut rates.

Inflation Concerns

Other economists echo these sentiments. James Egelhof, chief U.S. economist at BNP Paribas, argues inflation will see upward pressure throughout 2025 due to factors such as **tariff hikes, tighter immigration policies, and continued easy fiscal policies**. Aditya Bhave from BofA Global Research shares this view, suggesting that March does not align with Powell’s base case for cutting rates, indicating that the first quarter will likely pass without any adjustments.

A Potential Shift in Rate Expectations

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, also emphasizes that the Fed has almost achieved its neutral policy stance, estimating it to be around **3.75%**. Given this, he argues there is a strong basis for keeping rates on hold for the year. In contrast, activity in derivatives markets signals some traders still expect potential cuts later this year.

However, as Blitz points out, the possibility of a rate hike can’t be dismissed if inflation were to reaccelerate. He also suggests that market adjustments could begin anticipating hikes as early as **2026**.

Economic Uncertainty and Fed’s Dilemma

The current environment is rife with uncertainty. Many experts believe the Fed has successfully tackled inflation, but there remains a mixed outlook on future cuts. Diane Swonk, chief economist at KPMG US, described the Fed’s policy as being in a “sort of policy purgatory,” highlighting that the central bank is unsure of how to navigate the landscape amid uncertainties surrounding the new administration’s policies.

While some Wall Street analysts, including those from Morgan Stanley, take a contrarian view by expecting a short-term cut in March followed by another in June, this perspective is not universally accepted. Their stance hinges on the expectation that inflation continues to move toward the Fed’s target of **2%**.

Conclusion

In conclusion, the Federal Reserve appears to be in a state of cautious deliberation as it weighs the economic landscape. Overall, the majority sentiment among economists leans toward the belief that the current cutting cycle has reached its end, with Powell emphasizing the necessity of substantial evidence regarding inflation or job market weakness before contemplating additional cuts. As the Fed navigates these conditions, the financial markets will remain vigilant, adjusting to signals that may suggest the future trajectory of interest rates.