The U.S. Federal Reserve is expected to maintain its key interest rate through this quarter and potentially until Chair Jerome Powell’s term ends in May, as indicated by a majority of economists surveyed by Reuters. This marks a shift from previous expectations, with most economists now predicting no rate cuts in the near term due to the strong growth of the U.S. economy and inflation levels above the Fed’s 2% target. However, the majority still anticipates at least two rate reductions later in the year.
There are growing concerns in financial markets and policy circles regarding potential political interference in the Fed’s independent decision-making on interest rates. The Fed policymakers are currently divided on the economic outlook and the appropriate course of action.
U.S. President Donald Trump has been critical of Powell’s reluctance to lower rates more aggressively. Furthermore, the Justice Department has brought criminal charges against Powell related to building renovations at the Fed’s new headquarters. Trump’s attempt to remove Fed Governor Lisa Cook is also pending a Supreme Court hearing.
All 100 economists surveyed in the recent poll expect the Fed to maintain rates at 3.50%-3.75% at its January meeting, with a majority foreseeing no changes in rates this quarter compared to previous expectations of at least one cut. Jeremy Schwartz, a senior U.S. economist at Nomura, suggests that the Fed may stay on hold for the duration of Powell’s term but could implement rate cuts later in the year under new leadership.
While there is no clear consensus on rates beyond this quarter, a slight majority of respondents expect rate cuts to resume once Powell’s tenure as Fed chair concludes in May. Treasury Secretary Scott Bessent has indicated that Trump may select the next Fed chairman as early as next week, sparking concerns about potential pushback due to ongoing investigations.
The U.S. economy, which grew at a robust pace of 4.3% in the third quarter, is projected to expand by 2.3% this year, up from 2.2% in the previous year. Economists anticipate continued growth due to investments in AI and the impact of tax cuts under the fiscal bill. This optimistic outlook is expected to keep inflation levels above the 2% target for the foreseeable future.
The unemployment rate is forecasted to remain stable, averaging 4.5% this year. Overall, the economic landscape is expected to remain strong, with the potential for further rate adjustments and policy changes under new leadership at the Federal Reserve.
