As we head into 2025, all eyes are on the Federal Reserve and its plans for interest rates. With the Federal Open Market Committee (FOMC) setting its meeting schedule and sharing projections for the year, we’re starting to get a clearer picture of where rates might be headed.
Fed meeting schedule and rate cut
The FOMC plans to meet eight times in 2025 to evaluate the state of the economy and adjust policies as needed. At its final meeting of 2024, the Committee lowered the federal funds rate by 25 basis points, bringing it to a target range of 4.25% to 4.5%. This move was part of a series of rate cuts aimed at supporting economic growth and moderating inflation.
Outlook on projected rate cuts
Federal Reserve officials have signaled that they’ll proceed cautiously with further rate reductions in 2025. The latest projections suggest only one to two additional quarter-point cuts over the course of the year, which is a slowdown from previous expectations. This adjustment reflects concerns about persistent inflation and the desire to maintain economic stability.
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Key economic indicators influencing this outlook
- Economic Growth: The U.S. economy has largely remained steady, with consistent GDP growth contributing to a stable economic environment.
- Unemployment: The labor market remains strong, with unemployment holding steady at around 4%, indicating near-full employment.
- Inflation: While there’s been progress in reducing inflation, it remains high. The Federal Reserve aims for a 2% inflation target, and current projections estimate core inflation to decrease to roughly 2.5% in 2025.
When considering these leading indicators, it’s important to remember the cumulative impact of inflation. Price increases over the past four years have resulted in many goods and services costing roughly 20% more than they did in 2019. This underscores why the Fed is focused on stabilizing prices to better protect purchasing power for consumers and businesses alike.
Potential risks and considerations
The Fed’s projections rely heavily on current trends, but the economic landscape can shift unexpectedly. Rising unemployment or signs of disinflation in the second half of the year could lead to more aggressive rate cuts than currently planned. Also, geopolitical events, fiscal policy changes, and global economic conditions will continue to play a role in shaping the U.S. economy.
Implications for consumers and investors
For consumers, the anticipated rate cuts may lead to lower borrowing costs for mortgages, auto loans, and other credit products, potentially stimulating spending and investment. That said, other factors like credit risk and market conditions will also play a role in determining the rates offered to consumers.
Investors should stay informed about how interest rates affect different types of investments. For example, bond prices often fall when interest rates rise, and industries like real estate and utilities can be impacted by changes in borrowing costs. To manage these shifts, it’s important to have a diversified investment plan that matches your financial goals and comfort with risk.
What to watch in 2025
As we move through 2025, the Fed’s approach to interest rates will continue to shape the economic landscape. While current projections suggest modest adjustments, unexpected changes in unemployment, inflation, or global markets could shift the outlook. The best approach for individuals and businesses is to stay flexible and informed. Reassessing budgets, evaluating investment strategies, and preparing for new opportunities will help ensure financial stability in a dynamic environment.
Hillary Stalker, CFP, is an executive vice president and financial adviser at CapWealth. For more information, visit capwealthgroup.com.
