Will the Fed continue cutting rates in 2025? 

Fed chair Jerome Powell characterized the September move as a “risk management cut” to forestall the prospect of further labor market slowing, casting doubt on whether it marks the start of an extended easing cycle. However, J.P. Morgan Global Research expects two more cuts in 2025, and one in 2026.

“The divergence between the more dovish FOMC dots [which charts short-term interest rate projections from the Fed’s top policymakers] and the more hawkish growth and inflation profiles suggests the recent policy action should be seen as an insurance cut, rather than a substantive shift in the Fed’s reaction function. That said, we think a major shift in labor market momentum would be needed to prevent another cut in October, and there will only be one more employment report between now and then,” said Michael Feroli, chief U.S. economist at J.P. Morgan. “However, if labor market risks don’t materialize in the fourth quarter — particularly in the form of a higher unemployment rate — then the Committee might pause after the October or December meetings.”  

During his press conference, Powell noted that the economy is in a “curious kind of balance,” with unexpectedly sharp declines in both labor demand and labor supply. Yet, he also acknowledged that the economy is still in decent shape overall. “The fact that the median unemployment forecast for 2025 was unchanged from June may suggest the Committee is hesitant to read too much into recent job slowing, although the broad support for the rate cut certainly reflects a concern that downside risks to the labor market have become a reality,” Feroli added.