Federal Reserve Expected to Cut Rates Twice in 2025's Second Half

London Royal Asset Management Senior Economist Melanie Baker has reiterated her expectation that the Federal Reserve will reduce interest rates twice in 2025. However, she anticipates that these cuts will not occur until the second half of the year. This prediction is based on the expectation that the economy will show clearer signs of slowing down during this period.

Baker highlighted that the risk of a recession has increased, and both the global and U.S. economic outlooks have deteriorated. Despite this, she currently aligns with the "economic slowdown" camp rather than the "economic recession" camp. This stance is influenced by the temporary suspension of tariff escalation and indications that market pressures are being addressed.

According to Baker, the Federal Reserve is likely to wait for more concrete evidence of an economic slowdown before implementing interest rate cuts. This cautious approach is aimed at ensuring that the cuts are timely and effective in supporting the economy during a period of potential downturn.

Baker's analysis suggests that the Federal Reserve will closely monitor economic indicators and market conditions in the coming months. The decision to cut interest rates will be guided by the need to stabilize the economy and prevent a deeper slowdown. The timing of these cuts is crucial, as premature action could be ineffective, while delayed action could exacerbate economic challenges.

Baker's forecast underscores the importance of the Federal Reserve's role in managing economic cycles. By carefully assessing the economic landscape and responding with appropriate monetary policy, the Federal Reserve can help mitigate the impact of a slowdown and support sustained economic growth.