Fed to Wait Months for Next Rate Cut Amid Tariff Inflation Risks - Reuters Poll

The Federal Reserve (Fed) is set to adopt a cautious approach to interest rate cuts, with a majority of economists in a Reuters poll expecting the central bank to wait until the second quarter of 2025 before making its next move. This shift in sentiment comes as concerns about rising inflation risks from President Donald Trump's proposed tariffs have increased. The Fed is likely to monitor key economic indicators closely before deciding on the next rate cut.



The Reuters poll, conducted between February 4 and 10, found that a near-60% majority of economists had expected the Fed to reduce rates in March. However, the poll results shifted, with a two-thirds majority now expecting at least one rate cut by end-June. Only 17 of 99 economists with end-2025 forecasts said the next cut will come in the second half of the year, and 16 expected no cuts this year. Interest rate futures are pricing in just over a 50% probability of one rate cut by mid-2025.

The Fed's caution is driven by concerns about the potential impact of Trump's tariffs on inflation. Over 90% of common contributors between the October survey and the latest poll raised their 2025 annual inflation forecast, by around 40 basis points on average. Nearly 60% of respondents said U.S. inflation risks from tariffs have gone up recently. A study by the Federal Reserve Bank of Boston, titled "Current Policy Perspectives," estimates that an additional 25 percent tariff on goods from Canada and Mexico combined with an additional 10 percent tariff on goods from China could add as much as 0.8 percentage point to core (excluding food and energy) inflation. By contrast, the policy that was proposed during the presidential campaign, an additional 60 percent tariff on imports from China and an additional 10 percent tariff on imports from the rest of the world, could have contributed as much as an additional 2.2 percentage points to core inflation.



The Fed will likely monitor several key economic indicators to assess the impact of tariffs on inflation and economic growth before deciding on the next rate cut. These indicators include inflation rates, particularly the Personal Consumption Expenditures (PCE) price index; Gross Domestic Product (GDP) growth; trade flows and exports; consumer and business expectations; and exchange rates. By closely monitoring these indicators, the Fed can better assess the impact of tariffs on inflation and economic growth, helping it make informed decisions about the next rate cut.

In conclusion, the Fed is adopting a cautious approach to interest rate cuts, with a majority of economists expecting the central bank to wait until the second quarter of 2025 before making its next move. This shift in sentiment comes as concerns about rising inflation risks from President Donald Trump's proposed tariffs have increased. The Fed is likely to monitor key economic indicators closely before deciding on the next rate cut, ensuring that its policy decisions are data-driven and responsive to the evolving economic landscape.