Fed not seen cutting rates again until June in latest survey

[NEW YORK] Economists now expect that the US Federal Reserve will not cut interest rates until June, based on the latest Bloomberg monthly survey. 

In December, economists had forecast the first rate cut of the year to come in March. But with inflationary pressures lingering and signs of stabilisation in the labour market, the timeline has moved further out.

The policymakers’ preferred inflation metric is projected to stay above their 2 per cent target till at least the middle of 2027.

After lowering borrowing costs three straight times to close out 2025, Fed officials are widely expected to hold the rates steady next week. Economists in the survey predict that the second and final reduction of the year will come in September, unchanged from last month’s survey.

Investors have similarly pushed back expectations of when the Fed will resume cutting rates.

The first reduction is now not seen as probable until at least June, based on federal funds futures contracts, against in December when a reduction in April was seen as more likely than not. 

The Fed also is not under pressure to immediately cut rates after one of the strongest back-to-back quarters for economic growth since 2021, and forecasters do not expect the government shutdown to weigh on the gross domestic product (GDP) as much as previously thought.

The fourth-quarter GDP is projected to rise 2.1 per cent, more than double economists’ prior estimate and in line with its longer-term trend.

Officials have been divided over how soon and how much they should lower rates this year, with the holdouts concerned about inflation.

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The so-called core personal consumption expenditures price index, which excludes food and energy costs, is expected to average 2.7 per cent this year before easing to 2.2 per cent by mid-2027.

Bloomberg surveyed 75 economists from Jan 15 to Jan 21 as threats to the Fed’s independence from the Trump administration intensified.

The Justice Department served the central bank with subpoenas just days before the survey began, while the Supreme Court held a hearing on Jan 21 as to whether the president can fire Fed governor Lisa Cook.

“Much of what the Fed does depends on trust – it is the foundation of a market-based economy,” said Diane Swonk, chief economist at KPMG. “Once trust is eroded, all transactions become more expensive.” BLOOMBERG