Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.
Interest Rate Forecast: How Much More Will the Fed Cut?
By Adam Hardy MONEY RESEARCH COLLECTIVE
Analysts and interest-rate trackers are forecasting a high probability of a 25-point rate cut next week, bringing the federal funds rate down to the 4.25%-to-4.50% range.
As the Federal Reserve prepares to meet next week for the final time in 2024, analysts are broadly predicting one last rate cut to close out the year.
With so many economic uncertainties looming, Wall Street is banking on the Fed to be a source of predictability. Analysts and interest-rate trackers are forecasting a high probability of a 25-point rate cut next week, bringing the federal funds rate down to the 4.25%-to-4.50% range.
“COVID-era distortions seem to be fading away,” Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, said in emailed commentary. “A cut in December looks likely.”
Find Your Actual Rate at Rocket Mortgage (NMLS #3030) Today!
View RatesAccording to CME FedWatch, a popular interest-rate probability tracker, there’s an 88% chance of a 25-point rate cut. A similar tool from the Federal Reserve Bank of Atlanta predicts a rate cut of that size is 80% likely. The tools predict a 14% and 18% likelihood, respectively, that rates will remain unchanged.
After keeping rates at 0% during the pandemic and raising them in 2022 and 2023, the Fed cut interest rates by 25 points in November and 50 points in September. At a news conference following November’s interest rate cut, Fed Chair Jerome Powell described the labor market as solid and said he sees inflation sustainably cooling to the Fed’s long-run target of 2%.
According to the minutes from that meeting, some Fed officials noted that inflation is stickier (aka harder to shake) than expected. Subsequent inflation reports confirmed that, showing headline inflation ticked up slightly in October to 2.6%.
Fed officials will reconvene in Washington, D.C., on Dec. 17 and announce their decision Dec. 18.
Where are interest rates headed in 2025?
For 2025, predictions are far less certain. Big picture, experts largely expect inflation to keep cooling and the Fed to continue cutting interest rates. But there are a lot of unknowns with President-elect Donald Trump returning to the White House.
“Next year is a different story,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, told CNBC, “given the uncertainty surrounding potential tariffs and other Trump administration policies.”
Zentner explained that markets are already weighing the possibility that the Fed will cut fewer times in 2025 than previously thought and that the Fed may skip a rate cut as soon as the January meeting.
J.P. Morgan is now forecasting four rate cuts next year, one per quarter, changing its previous prediction of one 25-point cut at each of the eight Fed meetings next year. The firm now expects the Fed to stop cutting rates once they reach 3.5% — up from an earlier forecast of 3%.
According to Sofia Baig, an economist at research firm Morning Consult, tariffs — and even the threat of tariffs — could stoke inflation and complicate the Fed’s monetary policy plan next year.
“Supply chains are already showing signs of reheating,” she said in emailed commentary, “and could be facing more headwinds in 2025 with potential economic policies like broad based tariffs.”
On Sunday, Trump clarified at least one major question mark for the Fed. In an interview for NBC’s Meet the Press, the president-elect indicated he does not have plans to tell Powell to resign, quelling rumors that he may install a new Fed chair.
A Trump appointee, Powell has chaired the Fed since 2018.
More from Money:
6 Money Moves You Should Make Before the End of the Year
Why the Odds of a ‘Santa Claus Rally’ in the Stock Market Are High This Year
Why the Number of 401(k) Millionaires Just Hit a Record High — Again
Adam Hardy is Money's lead data journalist. He writes news and feature stories aimed at helping everyday people manage their finances. He joined Money full-time in 2021 but has covered personal finance and economic topics since 2018. Previously, he worked for Forbes Advisor, The Penny Hoarder and Creative Loafing. In addition to those outlets, Adam’s work has been featured in a variety of local, national and international publications, including the Asia Times, Business Insider, Las Vegas Review-Journal, Yahoo! Finance, Nasdaq and several others. Adam graduated with a bachelor’s degree from the University of South Florida, where he studied magazine journalism and sociology. As a first-generation college graduate from a low-income, single-parent household, Adam understands firsthand the financial barriers that plague low-income Americans. His reporting aims to illuminate these issues. Since joining Money, Adam has already written over 300 articles, including a cover story on financial surveillance, a profile of Director Rohit Chopra of the Consumer Financial Protection Bureau and an investigation into flexible spending accounts, which found that workers forfeit billions of dollars annually through the workplace plans. He has also led data analysis on some of Money’s marquee rankings, including Best Places to Live, Best Places to Travel and Best Hospitals. He regularly contributes data reporting for Best Colleges, Best Banks and other lists as well. Adam also holds a multimedia storytelling certificate from Poynter’s News University and a data journalism certificate from the Investigative Reporters and Editors (IRE) at the University of Missouri. In 2017, he received an English teaching certification from the University of Cambridge, which he utilized during his time in Seoul, South Korea. There, he taught students of all ages, from 5 to 65, and worked with North Korean refugees who were resettling in the area. Now, Adam lives in Saint Petersburg, Florida, with his pup Bambi. He is a card-carrying shuffleboard club member.