The Federale Bank's 2025 Meeting Agenda and Anticipated Interest Rate Developments
The Federale Bank's 2025 Meeting Agenda and Anticipated Interest Rate Developments
Fixed income markets predict that the Federal Reserve will make minimal interest rate reductions in 2025, with short-term rates closing the year around 4%. This is a decrease from the current range of 4.25% to 4.5% as of January 2025, following a rate decrease by the Fed in December 2024.
The expectation is that the U.S. economy will continue to grow, unemployment will remain slightly above 4%, and inflation will end the year close to 2.5%. These projections were the median forecasts of Federal Open Market Committee policymakers in December 2024. If the economic performance deviates from these expectations, the interest rate outlook will adjust accordingly.
The Expected Timeline for Interest Rate Cuts in 2025
The FOMC is scheduled to meet eight times in 2025, with the possibility of emergency meetings.
FOMC Meeting Schedule for 2025
The first interest rate decision of 2025 is anticipated on January 29, with a probable hold on rates. A cut is currently forecasted with about equal chance at the March 19 meeting. Rates may remain steady on May 7 and June 18, before another potential cut on July 30 or September 17. After that, the outcomes are more spread out for October 29 and December 10. Significant changes in the economic situation in 2025 could lead to additional interest rate cuts during these meetings, although this is currently viewed as less likely.
Market Expectations
Overall, fixed income markets anticipate between two to three rate cuts in 2025. The FOMC's own projections from December 2024 suggest two cuts as the most likely scenario, with a range of less likely outcomes from no change to five potential cuts.
The first half of 2025 might only see one interest rate reduction. The second half of the year is less predictable, but most likely to see another one or two interest rate reductions.
Economic Uncertainties for 2025
Interest rate decisions by the FOMC depend on data. With inflation levels now returning to normal, the FOMC seems comfortable with the adjustment of interest rates as well.
The unemployment rate, as of November 2024, was 4.2%. Policymakers don't expect it to rise more significantly in 2025 or do so at a fast pace. An unexpected surge in employment could lead to more aggressive interest rate cuts.
Inflation is another closely watched variable in 2025. Current expectations predict that inflation will remain slightly above the FOMC's 2% annual inflation target for 2025, but not excessively. If inflation were to escalate significantly, it would concern the FOMC.
However, this scenario is not currently predicted by most forecasts, with even the most hawkish projections indicating a steady interest rate situation in 2025 instead of a rise. But if inflation returned to the 2% target or declined below it, we could expect more than two rate cuts.
Fed Expectations for 2025
2025 is anticipated to see interest rate reductions from the FOMC, but at a modest pace, with two cuts being the most likely scenario. Lesser certainty exists in the second half of the year, where rising unemployment or disinflation could prompt Fed officials to reduce rates more than estimated.
The expected federal open market committee meetings in 2025, as outlined in the 2025 fed calendar, could potentially include interest rate cuts. These expected reductions in short-term interest rates 2025 are based on the median forecasts of the federal open market committee members, who predict that inflation will end the year close to 2.5%. This projected decrease in interest rates 2025 is anticipated to help support the growth of the U.S. economy 2025, despite an unemployment rate slightly above 4%. The fed funds rate 2025 is expected to close the year around 4%, following minimal interest rate reductions by the Federal Reserve.