The US Federal Reserve is expected to keep interest rates on hold for at least a few more months, according to a majority of economists interviewed by Reuters, amid concerns that inflation could rise again due to President Donald Trump's tariff policies.
With most trade talks still to be concluded by the July 9 deadline for the end of a 90-day cooling-off period announced in April, forecasters remain cautious about changing their already fragile economic outlook.
Concerns about the rising US debt and a surge in bond issuance fueled by a massive tax cut bill that has passed the House but not the Senate are also adding to the pressure.
Data on Friday showed no sign of major pressure in the labor market, suggesting the Fed is in no rush to cut interest rates anytime soon.
In a Reuters poll of 105 economists from June 5-10, only two expected the FOMC to change rates at its June 17-18 meeting, with the rest predicting rates will remain in the 4.25%-4.50% range, where they have been since the start of the year.
About 55% of respondents (59 of 105) expect the Fed to continue cutting rates next quarter, most likely in September, in line with futures market expectations. This forecast has not changed since last month.
“As long as the labor market remains strong, we expect the FOMC to continue holding rates steady and using rhetoric to maintain credibility in containing inflation. If there is no cost, why signal otherwise?” said Jonathan Pingle, chief U.S. economist at UBS.
Inflation expectations remain high due to expectations that U.S. trade barriers will continue to rise. The administration recently doubled tariffs on aluminum and steel from 25% to 50%.
U.S. officials are currently holding trade talks in London with senior Chinese officials, seeking a solution.
Meanwhile, consumers expect price pressures to increase over the next few years, while economists predict inflation will remain above the Fed’s 2% target at least until 2027.
A full 42% of respondents (44 of 105) expect the FOMC to start cutting rates again in the fourth quarter of 2025 or later, with 20 predicting no cuts at all this year.
There is no clear consensus on where interest rates will be at the end of 2025, but about 80% of economists (85 of 105) expect rates to be in the 3.75%-4.00% range or higher.
Trump has called for rates to be cut immediately by a full percentage point to 3.25%-3.50%.
The Trump administration’s signature tax bill, currently in Congress, is expected to add $2.4 trillion to the existing $36.2 trillion debt, making rate cuts more difficult.
“With more fiscal stimulus coming through the tax and spending bills, the Fed sees less need to support the economy through lower interest rates,” said Bill Adams, Chief Economist at Comerica Bank.
“Fiscal policy is expected to continue pushing deficits higher and put upward pressure on long-term interest rates, a challenge for sectors like housing and credit-dependent business investment.”
The economy, which shrank by 0.2% last quarter due to a widening trade deficit, is expected to grow just 1.4% this year, down sharply from 2.8% in 2024. Next year, growth is expected to be around 1.5%, unchanged from the May forecast.
