In a shift that has caught investors off guard, Federal Reserve members have revised their projections for interest rate cuts in 2025, signaling a more cautious approach to monetary policy. The Fed's latest projections, released after its December meeting, show a significant scaling back of expected rate cuts, with the median projection now at just 0.5 percentage points, down from the previous 1 percentage point.



This change in outlook has been driven by a combination of factors, including stubbornly high inflation, stronger-than-expected economic data, and the potential impact of President-elect Donald Trump's proposed policies on the economy and inflation. The Fed's minutes from the December meeting reveal a growing concern among officials about the persistence of inflation, with some participants noting that the disinflationary process may have stalled or could take longer than previously anticipated.

The revised projections have led to a shift in market expectations for economic growth and inflation. While the Fed's slower pace of rate cuts suggests that it is less concerned about a significant economic slowdown in the near term, economic growth is still expected to slow down in the coming years. The Fed projects GDP growth to be around 1.8% in 2025, down from the current 2.5%. Inflation is also expected to remain slightly above the Fed's 2% target in the coming years, with the median projection for the Personal Consumption Expenditures (PCE) price index at 2.1% in 2025.

The change in interest rate outlook is likely to have an impact on various sectors, including mortgage rates, car loan rates, and credit card interest rates. While the Fed's rate cuts may not significantly impact mortgage rates, which are more sensitive to 10-year treasury yields, Wells Fargo and Fannie Mae economists expect mortgage rates to remain above 6% in 2025. This could make home buying and refinancing more expensive for consumers. Car loan rates may initially drop in 2025 but could bounce back later in the year, affecting both new and used vehicle purchases. The Fed funds rate heavily influences credit card interest rates, which typically move in tandem, so as the Fed continues to cut rates, credit card interest rates could become less expensive for consumers.



However, President-elect Trump's proposed tariffs could stoke inflation, which may force the Fed to slow down its interest rate cuts. This could affect all borrowing costs, including those mentioned above. Economists are closely watching for any of President-elect Trump's tariffs, as they could stoke inflation and impact the Fed's decision on interest rate cuts.

In conclusion, the Fed's revised projections for interest rate cuts in 2025 have led to a shift in market expectations for economic growth and inflation. While the Fed is less concerned about a significant economic slowdown in the near term, economic growth and inflation are still expected to change in the coming years. The impact of these changes on various sectors, including mortgage rates, car loan rates, and credit card interest rates, will depend on how the economy and inflation evolve in response to the Fed's monetary policy and other factors.