US central bank officials are still widely expected to cut the benchmark interest rate by a quarter of a percentage point to a range of 4.50 percent and 4.75 percent when they conclude the two-day monetary policy meeting tomorrow, Thursday.
Futures contracts linked to the US central bank interest rate expect a cut Interest rates In December, albeit a slightly lower rate than before, the central bank remeasures borrowing costs against inflation, which is now much closer to its two percent target and in light of the slowdown in the labor market.
But in a shift that could have dire consequences for companies and households looking to refinance debt or borrow again, traders are now betting that the Fed will cut interest rates just twice in 2025, lowering it to a range between 3.75 percent and four percent. It takes until July to do this.
If these forecasts come true, the current rate-cutting path would conclude more than a year earlier than its original conclusion date, and the interest rate would be a full percentage point higher than most Fed policymakers expected after the first rate cut in September.
Trump built his election campaign on promises to reform what he sees as a faltering economy, and plans to impose higher tariffs, cut taxes, and impose strict restrictions on immigration.
Economists say that these policies, which are likely to lead to faster economic growth, strengthen the labor market and raise import costs, will put upward pressure on prices, according to a Reuters report.
“A delay in the inflationary effects of tariffs and expansionary fiscal policies allows the Fed to continue cutting interest rates through 2026, when the central bank still needs to readjust monetary policy to be less restrictive,” Oxford Economics analysts wrote.
Oxford Economics analysts confirmed their expectation that the Federal Reserve will cut interest rates to nearly three percent by mid-2026.