Investors (and Trump) are about to find out if Fed still wants rate cuts in 2025

The Federal Reserve is widely expected to hold interest rates steady at its meeting this week, but investors will be watching for something else — whether central bank policymakers are still committed to two rate cuts this year.

The Fed’s latest round of projections, released Wednesday, will include the much-studied “dot plot,” a chart updated quarterly that shows each Fed official’s prediction about the direction of the central bank’s benchmark interest rate.

The last dot plot, released in March, revealed a consensus among Fed officials for two cuts this year as some were already factoring the uncertainties of President Trump’s economic policies into their projections. They made the same prediction last December.

Many Fed watchers expect central bank officials to stick with what they have already signaled as they weigh numerous unknowns. The latest curveball came late last week as Israel’s airstrikes across Iran stoked fears that a protracted war could lead to higher oil prices and inflation this summer.

“This meeting will be all about the dot plot,” former Kansas City Fed president Esther George said. Due to how fluid things are at the moment, she predicts that “they will be reluctant to signal changes from where they were earlier.”

Wilmington Trust chief economist Luke Tilley said he isn’t expecting many changes, either.

“I don’t think that the dots will change very much, and I don’t think the narrative will change very much either. Right now, it’s two cuts, and I imagine it will stay pretty much the same.”

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

‘May have to force something’

The Fed and its chair, Jerome Powell, are under an extreme amount of political pressure to speed up the timetable for any cuts, as President Trump continues to hammer Powell publicly for not easing policy sooner.

The president last Thursday said he “may have to force something” as part of his ongoing push for the central bank to lower rates by a full percentage point, but he noted that he would not fire Powell before his term is up in 2026 — a move that would almost certainly be challenged legally.

He also referred to Powell as a “numbskull,” adding to a string of insults coined by Trump in recent months.

Trump has been citing lower inflation as a reason for the central bank to cut. But Powell and many of his fellow policymakers have made it clear in recent weeks they are still more worried about the risks of higher prices from Trump’s tariffs than any rise in unemployment as they weigh both sides of their dual mandate.

EY-Parthenon chief economist Gregory Daco expects Powell on Wednesday to stress the risk of longer-lasting inflation because of tariffs and acknowledge that difficult trade-offs may emerge if inflation stays elevated while growth and employment soften.

He said Powell will likely emphasize that with inflation still above the Fed’s 2% target and the job market consistent with full employment, the bar for cutting rates remains high.

“Chair Powell will likely strike a tone of cautious patience, reiterating that policy remains data dependent and that the Fed is prepared to recalibrate policy over time,” Daco said.

The latest measures of inflation have, in fact, shown milder increases in prices even as tariffs were turned on full blast — a trend highlighted last week by Trump and Treasury Secretary Scott Bessent, who told lawmakers last Thursday that “there is no tariff inflation.”

Read more: What Trump’s tariffs mean for the economy and your wallet

Bessent’s pronouncement came one day after a report showing the “core” measure of the Consumer Price Index that excludes volatile food and energy costs rose 2.8% over the past year in May, holding steady from April.

The Fed’s preferred inflation gauge, the “core” Personal Consumption Expenditures (PCE) index, rose 2.5% in April, down from 2.7% in March. The Fed’s goal is to get this number down to 2%.

“There hasn’t been a whole lot of inflation pressure other than the shelter index, which continues to drift down,” Tilley said.

Fed watchers note that the job market is cooling but not cracking as the unemployment rate holds at 4.2% and wages are still rising at a nearly 4% clip.

Thus, the job market is not giving Powell and the Fed many reasons to consider a cut in the near term. Investors are currently betting they won’t see that first cut until September at the earliest.

“The real question is what is going to happen in the second half of the year, and will those trends continue?” former Cleveland Fed president Loretta Mester said.

“That’s where the high level of uncertainty still is with us, and that I think is why the Fed is on hold until some of that we get a little more clarity about not only the magnitude of the tariffs and the breadth of the tariffs, but what effect they’ll have on inflation,” she added.

‘They need to leave that door open’

Mester said holding the fed funds rate steady doesn’t seem very costly to gain more clarity in the summer on tariffs.

But Tilley said he believes the Fed should leave the door open for a rate cut in July, which is when expects the first rate cut. He expects that by that time, the economy will show signs of weakening and the job market will have cooled further.

“They need to leave that door open because a year ago, when they went into the June meeting, they completely took July off the table,” Tilley said. “In September, they ended up cutting by 50 basis points because they realized they had fallen behind.”

JPMorgan chief economist Michael Feroli said he doesn’t anticipate a rate cut until December, noting that Fed officials have been “univocal in their desire to wait and see how higher tariffs affect the economy before acting.”

Feroli is looking for an additional three consecutive cuts early next year before reaching a resting spot at 3.25%-3.50%. Rates are currently in the range of 4.25%-4.5%.

George said her sense is that the bias is still to cut rates, as officials signaled in March. She noted that Fed governor Christopher Waller has made it clear he sees that possibility and others holding out hope that cuts are still possible.

“I don’t think they have the leeway to be acting on or penciling in changes,” George said. “That would shake the markets around. I don’t think they want to cause people to think things are going to be tighter for longer when they’re not ready to say that.”

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