Washington, D.C., February 24, 2025 – Research released by the San Francisco Fed on Monday reveals that investors and economists expect the U.S. central bank to respond “strongly and systematically” to shifts in inflation and labor market conditions.
The analysis, which examined professional forecasts and bond market movements, indicates that market participants have grown increasingly sensitive to U.S. economic data - especially since 2022.
The study notes that although inflation began rising in 2021, the Fed did not initiate interest rate hikes until 2022. Similarly, deteriorating labor market data in mid-2022 spurred the Fed to reduce the policy rate by a full percentage point starting last September. Currently, the Fed’s target rate stands between 4.25% and 4.50%.
Recent economic indicators, including a survey showing business activity falling to a 17-month low, have bolstered market expectations of two quarter-percentage-point rate cuts later this year. Interest rate futures suggest that the first rate cut could come as early as June, with a second possible as early as October.
Analysts point out that concerns over slowing economic growth are now overshadowing fears of a resurgence in inflation, influencing the anticipated Fed policy moves. The findings underscore the central bank’s readiness to adjust monetary policy in response to evolving economic conditions, as financial markets continue to closely monitor U.S. economic data.
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The U.S. Federal Reserve left its benchmark interest rate unchanged on Wednesday at 4.25%–4.50%, while maintaining its projection for two rate cuts by the end of 2025.
Federal Reserve Chair Jerome Powell delivered a forceful defense of the central bank’s response to the COVID-19 crisis on Sunday.
The U.S. Federal Reserve kept its benchmark federal funds rate unchanged on Wednesday, maintaining the target range at 4.25% to 4.50%, in a widely expected move as the central bank navigates a complex economic environment marked by slowing inflation, global trade tensions, and political pressure.
The U.S. economy faces a 40% risk of recession in the second half of 2025, JP Morgan analysts said on Wednesday, citing rising tariffs and stagflation concerns.
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