The Federal Reserve continued its recent trend of easing monetary policy on Thursday, lowering interest rates by 0.25 percentage points. This brings the federal funds rate to a range of 4.5% to 4.75%, a move that was widely expected by market analysts. While the Fed’s decision to cut rates was anticipated, the focus now shifts to understanding the potential trajectory of future policy adjustments.
Several economists have offered their insights on what the Fed might do next. Michael Brown, senior research strategist at Pepperstone, anticipates the Fed will continue cutting rates by 25 basis points at each meeting until reaching a neutral rate of approximately 3% by next summer. Brown acknowledged that some of President Trump’s policies, particularly tariffs, could have reflationary effects. However, he cautioned that by early next year, the Federal Open Market Committee (FOMC) will likely need to adjust its current approach to policy, becoming more adaptable to evolving economic conditions.
Joe Brusuelas, chief economist at RSM, also expects continued economic growth next year and predicts four 25-point rate cuts in 2025, one per quarter, ultimately bringing the rate to or near 3.5%. Brusuelas noted that the country is entering a period of unconventional economic populism as President Trump returns to office. He highlighted that his rate forecast is subject to change based on potential policy changes made by the administration during the year, particularly in fiscal, trade, and immigration policies.
Brusuelas believes that inflation is not an immediate concern. He reasoned that any policy adjustments implemented by the Trump administration would take time to impact the economy, suggesting that inflation should remain low through the middle and possibly the end of 2025.
Jamie Cox, managing partner for Harris Financial Group, shares the view that the Fed has room to lower interest rates further into 2025, emphasizing that the economy remains robust. Cox cautioned against expecting significant rate cuts unless the economy experiences a downturn, an event he deems unlikely in the near future.
Bill Adams, chief economist for Comerica Bank, pointed out that while the Fed implemented its previously signaled rate cut, it was less forceful in its commitment to future rate cuts. He highlighted Federal Reserve Chair Jerome Powell’s statement that the Fed is on a path towards a more neutral stance, emphasizing that “neutral” is a theoretical concept rather than a specific rate level. Adams noted that if the higher inflation expectations reflected in recent financial market activity materialize, the Fed might reduce rates more slowly than anticipated before the election.
As the Fed navigates the evolving economic landscape, its decisions will undoubtedly have a significant impact on both financial markets and the broader economy. The ongoing debate among economists highlights the complexity of the situation and the potential for future policy adjustments based on economic data and emerging trends.
