The Federal Reserve will keep interest rates steady through the first half of the year, before delivering two reductions beginning in September, according to economists surveyed by Bloomberg News.
Fed officials have signaled they may be on hold for some time amid uncertainty around President Donald Trump’s economic policies, particularly on trade. Those policies — both proposed and implemented — also led most economists to dial back their forecasts for growth, while upping their projections for inflation, the survey showed.
Trump has threatened or implemented new tariffs on America’s largest trading partners, including China, Canada and Mexico, but has frequently vacillated on the specifics of his plans. The uncertainty has rattled financial markets, and stoked concerns the US may face slowing economic growth while inflation remains elevated, a situation economists call stagflation.
“The Fed is in a very tough spot right now, facing a more stagflationary outlook even as core inflation remains well above its medium-term target,” said Scott Anderson, chief US economist at BMO Capital Markets. “Uncertainty around the magnitude, duration and targets of future tariffs further complicates the monetary policy outlook. They have the potential to roil monetary policy expectations as well as financial markets.”
The vast majority of respondents see the risks to inflation and unemployment as primarily to the upside, according to the survey conducted March 7-12.
As for next week, Fed Chair Jerome Powell and fellow policymakers are widely expected to leave the central bank’s benchmark interest rate unchanged in a range of 4.25% to 4.5%. Economists anticipate policymakers’ updated projections to also show two quarter-percentage point reductions this year.
Forecasters see these cuts in September and December, according to the median projection. In a December poll, economists forecast three cuts in 2025, with the first in March.
Economists expect officials’ quarterly forecasts to show slightly higher so-called core inflation, which excludes food and energy, and incrementally slower growth. But most survey respondents don’t expect much change to the key parts of the Fed’s post-meeting statement.
About 11% of respondents expect officials to further slow the pace at which they are shrinking the Fed’s portfolio of assets — a process known as quantitative tightening — at next week’s meeting. Another 41% anticipate that to happen at some point in the second quarter.
Trump Impact
Looking ahead, a key question for Fed policymakers is how they might respond to a situation where inflation remains stubborn, but the economy weakens.
Nearly three-quarters of survey respondents said they now see weaker growth in 2025 compared with their estimates at the end of 2024, as a result of Trump’s implemented or proposed policies. About two-thirds said they now forecast higher inflation.
Fed officials have broadly said it’s too soon to know how Trump’s policies might affect their rate decisions, while expressing optimism that labor market conditions will remain solid overall and inflation will continue to cool.
“The costs of being cautious are very, very low,” Powell said earlier this month. “The economy’s fine. It doesn’t need us to do anything, really, and so we can wait and we should wait.”
Roughly two-thirds of survey respondents said they would expect the Fed to hold rates steady if the economy were to weaken while inflation remains elevated. Still, such a scenario could prompt the Fed to cut more or sooner.
“If our downside scenario plays out, the Fed will have to shift to focus on growth risks and could start to cut rates by Q3,” said Kathy Bostjancic, chief economist at Nationwide. She projects one quarter-point cut this year in October.
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