Federal Reserve Interest Rate Outlook

The Federal Reserve is unlikely to cut interest rates at its policy meeting next week. However, if recession fears intensify, analysts suggest a series of rapid rate cuts could begin as early as June.

Market expectations for rate cuts have increased, with futures contracts pricing in 25 basis point cuts for June, July, and October. This uptick follows comments from US President Donald Trump regarding a “transition period” as he advances tariffs on multiple countries.

Traders of short-term interest rates have shifted their predictions for the Fed to start cutting rates from May to June, still anticipating a total of three cuts in 2025.

U.S. stocks and Treasury yields fell yesterday amid concerns that Trump’s statements could indicate an upcoming economic downturn.

Tim Duy, chief U.S. economist at SGH Macro Advisors, pointed out that despite a sense of calm, policymakers will worry about the rising risks to their objectives if labor or financial markets begin to decline before the Fed can evaluate the impact of tariffs and Trump’s policies on inflation. Duy cautioned that a slow response from the Fed might prompt backlash from the Trump administration, which is advocating for rate cuts.

> This is not investment advice.