Economists Cut Fed Rate Cut Predictions Amid Trump Inflation Concerns - FT

According to a survey of academic economists, the U.S. Federal Reserve is expected to take a more cautious approach to interest rate cuts due to concerns that the policies of the Trump administration will increase inflation. Economists participating in the survey held between December 11-13 raised their forecasts for the federal funds rate for the upcoming year compared to the previous FT-Chicago Booth survey conducted in September. The vast majority believe that the interest rate will be at 3.5% or higher by the end of 2025, while most respondents in September had anticipated it would likely fall below 3.5% by that time.

If the Fed proceeds with a quarter-point cut in its upcoming meeting as expected, the policy rate will stand at 4.25-4.5%. Jonathan Wright, a former Fed economist who assisted in designing the survey and currently works at Johns Hopkins University, stated, “In recent months, the downside risks to the labor market have become somewhat less dire, and progress on inflation seems to have somewhat stalled.”

Wright added, “Inflation has fallen less painfully than I and many others anticipated, but I think we may still see that the last piece of reaching the target could be a bit more challenging, and this is certainly not a favorable environment for the Fed to rush into lowering rates.”