What To Expect On Interest Rates For The Remainder Of 2025

Forbes

2 days ago

Fixed income markets see two or three interest rate cuts coming from the Federal Open Market Committee over the three remaining scheduled meetings of 2025. Soft jobs growth as reported for July and downward revisions to prior month's reports may call for incrementally lower interest rates. However, there is more economic data to come before the FOMC's next meeting to set interest rates on September 17.
The Fed's Remaining Meeting Schedule
Having held interest rates steady at 4.25% to 4.5% for the first five meetings of 2025, the FOMC has three scheduled meetings left. Interest rate decisions from these meetings will be announced on September 17, October 29 and December 10. The September and December meetings will also include an update to the FOMC's Summary of Economic Projections, where policymakers provide forecasts for economic variables including interest rates. The Fed Chair, Jerome Powell, will hold a press conference after each meeting.
Powell is also scheduled to speak at the Jackson Hole Economic Symposium during August 21-23. Historically these speeches from the Fed Chair have often been significant in signaling perspectives on monetary policy.
Slowing Recent Job Growth
Part of the FOMC's mandate is full employment, and July's jobs report showed some slowing in job growth. However, perhaps more importantly, job growth for May and June was revised down. That data and the accompanying revisions to prior months may be sufficient to prompt the FOMC to cut interest rates in September. That's because the pace of hiring over the past 3 months is now the slowest since the last recession.
Although, despite recently slowing job growth, unemployment has remained in a relatively narrow band of 4% to 4.2% since May 2024. The FOMC will also have August's jobs report, scheduled for release on September 5, when they next meet on September 17 so that will provide further color on employment trends.
Inflation Data
Updates to the Consumer Price index will come on August 12 and September 11. Despite subdued inflation for much of 2025 so far, the most recent CPI report for the month of June showed some inflationary pressure from tariffs on the prices of goods. However, even if inflation does pick-up, some policymakers have argued that the FOMC should look through what may be a one-time increase in prices.
Rolling Back Restrictive Monetary Policy
If there is further evidence that the jobs market could be softening and provided inflation figures remain generally tame, then the FOMC may elect to ease monetary policy. That's because monetary policy is currently somewhat restrictive, a position the FOMC put in place to help curtail inflation.
Markets currently expect that a September 17 interest rate cut is highly likely, although not certain. Following that, cuts in October and December are possible. This makes it likely that the Federal Funds rate ends the year at under 4% according to the CME FedWatch Tool. However, much of this projection will be subject to upcoming economic data.
Recent Dissents
A cut in September is also fairly likely because July's meeting saw two dissents calling for lower interest rates. That's relatively unusual. In both cases, these dissents were due to seeing early risks to the jobs market and a willingness to look through any tariff-related inflation as a one-off event. Governor Waller telegraphed his dissent in a recent speech, which proved prescient on revisions to jobs figures. Michelle Bowman explained her dissent in a recent statement.
What To Expect
Barring unexpected economic data the FOMC appears on course to cut interest rates in September, at their next meeting. Beyond that further cuts could come in October or December and possibly at both meetings. Much will depend on labor market data. If the labor market is seen to be slowing, as July's jobs report suggests it could be, then the FOMC may elect to address that with lower interest rates, even if inflation remains a little above target.