Rising Inflation Delays Fed Rate Cuts

By Indradip Ghosh

BENGALURU (Reuters) – The U.S. Federal Reserve is likely to wait until next quarter to cut rates again, as a majority of economists in a Reuters poll shifted their expectations from a March cut due to rising inflation concerns.

Economists have adjusted their forecasts upward since the election of U.S. President Donald Trump, citing fears that his tariff policies might reignite inflationary pressures in the economy.

The Fed had previously cut rates cumulatively by 100 basis points from September to December. Recent statements from Fed officials, including Chair Jerome Powell, indicate they are “not in a hurry” to lower rates again.

With a strong job market and solid consumer spending, many economists perceive the U.S. economy as being in a favorable position, reducing the need for further rate cuts.

New tariff announcements have been consistent, with Trump proposing a 25% tariff on all steel and aluminum imports and a new 10% tariff on Chinese imports, while also delaying trade barriers on Mexico and Canada until March 1.

James Knightley, chief international economist at ING, stated that these tariffs are inflationary and could negatively impact economic growth, creating uncertainty for Fed policy decisions.

A January poll showed nearly 60% of economists expecting a March rate cut, but a recent poll indicated a divided outlook, with 67 of 101 forecasters anticipating at least one cut by the end of June.

Forecasts vary widely, predicting the Fed will cut rates twice this year, leading to an end-2025 range between 3.00%-4.75%. Only 17 economists expected the next cut to occur in the latter half of the year.

Economists are more certain regarding inflation pressures, with over 90% of contributors raising their 2025 annual inflation forecasts. Nearly 60% of respondents believe that risks to U.S. inflation from tariffs have recently increased.

Neil Shearing of Capital Economics noted that ongoing uncertainty may keep Fed officials cautious, especially if high tariffs result in rising inflation, which would foreclose further easing for the remainder of 2025.

The U.S. economy, which grew an annualized 2.3% last quarter, is expected to expand 2.2% this year and 2.0% in 2026, outpacing the Fed’s view of a non-inflationary growth rate of 1.8%.

The unemployment rate decreased to 4% last month and is projected at 4.2% for this year and 4.1% for the next.