Markets expect the Federal Open Market Committee to cut rates between one and three times in 2025 from their current level of 4.25% to 4.5%. However, the first cuts may not come until the fall on the market’s current view as tracked by the CME FedWatch Tool.

The FOMC is expected to hold rates steady in June and, most likely, in July, too. That might leave the first cut of the year until September, with perhaps a second cut in December. Nonetheless, despite the predictions of fixed income markets, FOMC officials have largely spoken of a wait and see approach, meaning that the impact of tariffs and other government policies on the economy will ultimately shape interest rate decisions.

Fears of accelerating inflation or slowing growth, which some FOMC policymakers believe are a likely consequence of tariffs, haven’t materialized in reported economic data to this point. That arguably gives the FOMC the opportunity to be patient. For example, the unemployment rate has held in a range of 4.0% to 4.2% for the 12 months to May 2025. Without evidence of a weakening labor market and inflation above target, there is little obvious pressure for interest rate cuts. That said, President Trump has been vocal in calling for interest rate cuts. However, the FOMC’s monetary policy decisions are independent of the President.