The Fed will be cautious about cutting interest rates in 2025 and will pause its quantitative easing cycle after June, according to Comerica Bank chief economist Bill Adams.
Speaking at a finance panel, Adams outlined his predictions by suggesting the Fed will cut rates twice in 2025, in March and June, before adopting a “wait and see” approach for the rest of the year.
“The Fed signaled at its September meeting that they are looking to lower interest rates to a less restrictive level,” Adams said, noting that inflation has slowed to between 2.5% and 3%, but is still above the 2% target. That, combined with broader economic stability, reduces the need for interest rates to remain around 5%, he said.
Adams also pointed to external factors influencing the Fed's cautious stance, including the prospect of a new round of fiscal stimulus and potential upward pressure on goods prices due to higher tariffs in 2025.
These dynamics could leave U.S. interest rates just below 4% by the end of 2025, with Comerica setting its neutral rate at 2.5% to 3%.
The Fed’s potential break comes after a period of easing financial conditions and resilient market performance. While inflation has been tempered by lower goods prices and modest wage growth, concerns remain about the sustainability of these trends.
*This is not investment advice.
