While markets had been expecting a more pronounced monetary easing, the Federal Reserve chose caution. Current projections now point to just two rate cuts by 2025 — down from four in last September’s outlook — which would place rates around 3.75% to 4%. This revision reflects a Fed adopting a more cautious stance amid looming economic and political uncertainties.
But beyond these official forecasts, several analysts are casting doubt on whether even these two cuts will happen. Roger Hallam, global head of fixed income at Vanguard, warns that “what looks like a first cut could quickly turn into a long pause.” In other words, if economic signals remain unclear, the Fed might act once — or not at all.
An alternative, though less likely, scenario is beginning to emerge: a new rate hike in 2025. Why? Because despite this year’s reductions, inflation remains a concern. In fact, the Fed has raised its inflation outlook while maintaining a firm commitment to price stability. If the U.S. economy continues operating at full speed — fueled by stimulus measures or strong consumer demand — a renewed inflation surge could force the central bank to tighten policy once again.
Donald Trump’s measures — particularly tariff policies — have shaken consumer confidence and reignited inflation. The uncertainty stemming from his erratic trade agenda, combined with protectionist strategies and widespread layoffs, has already weakened the U.S. economy. In other words, the peak of interest rates may still lie ahead.
That said, any future increase would likely not mirror the sharp hikes of 2022 or 2023. Instead, we might see a phase of cautious normalization, where the Fed maintains relatively high rates for longer than anticipated. A 4% rate — in an environment where inflation stabilizes near 2% — could become the new normal.
For companies and borrowers, this implies a need to reassess financial strategies in light of a structurally higher cost of credit. The era of near-zero interest rates is over. And even if a rate hike isn’t the baseline scenario, the mere fact that it remains on the table is enough to keep uncertainty alive.
