🔹 1. The Fed is in no hurry to cut rates - why?

The Federal Reserve does not view the current rate holding as an aggressive measure, but rather as a strategic positioning against inflation that still exceeds the target of 2%.

Key reasons for restraint:

  • Core inflation (Core PCE) remains stubbornly high (around 2.8–3.2%);

  • The labor market remains overheated: the unemployment rate is consistently below 4%;

  • Consumer demand is resilient despite high borrowing costs.

Quote from Fed Chair Jerome Powell (May 2025):
“We will maintain restrictive policy as long as necessary to confidently return to 2% inflation.”

🔹 2. Official Fed forecasts (Dot Plot, June 2025):

  • The median FOMC forecast is one rate cut at the end of 2025, assuming inflation slows down.

  • Only 4 out of 19 FOMC members expect two or more cuts.

  • A cut in September is possible if CPI/Core PCE continue to fall to around 2.5%.

🔹 3. When exactly might they cut the rate?

Scenario

Possible rate change date

🅰️Base scenario - November 2025.

CPI ≤ 2.5%, decline in employment

🅱️Aggressive easing - September 2025

Unexpected economic slowdown

🅾️Delay scenario - Q1 2026

Inflation is stuck above 3%

🔹 4. What could accelerate a rate cut?

  • 📉 Sustainable decline in the PCE inflation index below 2.6%;

  • 📉 Increase in unemployment above 4.5%;

  • 📉 Decline in business activity and PMI below 45;

  • 📉 Mass corporate profit cuts.

🔹 5. When will they 'stop holding' the rate?

Highly likely:

  • The first cut - no earlier than September–November 2025;

  • Massive cutting cycle - no earlier than Q1 2026;

  • The Fed expects a prolonged period 'above neutral rate' to secure success in the fight against inflation.

📌 Conclusion:

The Fed keeps rates high because it does not trust the sustainability of disinflation. They prefer to 'err on the side of caution' rather than allow a resurgence of price growth. Only with a combination of falling inflation and cooling employment will the easing phase begin.

The key date the market is watching is the Fed meeting in September 2025.

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