Economists Expect Slower Interest Rate Cuts Next Year

Many figures in real estate were relieved this year when the Federal Reserve started bringing down interest rates. Next year may not bring much of the same.

Economists expect the Fed to slow interest rate cuts in the coming year, Bloomberg reported. A majority of economists forecast there will only be three rate cuts in 2025, though they expect one more by the end of the year.

Should the Fed enact a quarter-rate cut next week at its meeting, that would represent a full percentage point reduction in the last three months.

The Fed conducted its first cut since 2020 in September under pressure to bring down rates as its 2 percent target for inflation approached.

Since then, however, a number of factors might deter the Fed from more quick and decisive moves on fiscal policy. Economists don’t expect the first rate cut of 2025 until March, followed by ones in June and September, according to Bloomberg’s survey.

“Inflation has remained sticky, the economy and financial markets are overheating, the slight rise in unemployment earlier this year has reversed and the incoming Trump administration threatens more near-term inflation risk,” Scope Rating economist Dennis Shen told the publication.

Inflation hasn’t moved significantly in months, emerging as one of the most important economic indicators for economists. Higher interest rates are geared towards bringing down inflation, which is why the Fed first started drastic rate hikes a couple of years ago.

Donald Trump’s impact will also likely be monumental, even if it remains to be seen how. When Trump takes office in January, he will likely move on policy proposals from the campaign trail, including mass deportations, more tariffs and tax cuts.

Economists say those policies could be a hindrance to reducing inflation, which would make the case for further interest rate cuts harder to swallow.

— Holden Walter-Warner