What Economists Predict the Fed Will Do in 2025 – How Will Interest Rates Fall?Economists at Paidenreiger Asset Management predict significant changes in the US economy by the end of 2025, including a possible rise in unemployment and a more aggressive rate cut by the Fed than expected.
In their latest economic outlook report, economists predicted that core inflation, a key measure closely watched by the Fed, could fall below its 2% target sometime in 2025. But that improvement in inflation is expected to coincide with an increase in the unemployment rate, which is expected to rise to 4.4% or higher by the end of 2025.
With inflation falling and unemployment rising, the Fed could respond by cutting interest rates more aggressively than current market expectations. The report suggests the Fed could cut rates by more than the 35 basis points currently expected by U.S. money markets. Paidenreiger’s analysis suggests the optimal federal funds rate could be as low as 3.3%, which would require at least four rate cuts by 2025.
The Fed has begun cutting rates, cutting its benchmark rate by a full percentage point at each of its three meetings since September. But central banks have signaled a slower pace of cuts in the future. Policymakers expect to cut rates by just three-quarters of a percentage point through 2024, according to the Fed’s latest economic projections.
The forecasts underscore the delicate balancing act the Fed faces as it navigates a cooling economy. While controlling inflation remains a top priority, rising unemployment poses a challenge for policymakers seeking to maintain economic stability.