Economists expect Fed to hold rates through May, cuts likely later

A poll of 100 economists conducted Jan. 16–21 found unanimous expectations that the Federal Reserve will keep its benchmark federal funds rate at 3.50%–3.75% at the Jan. 27–28 policy meeting, and a clear shift toward a near-term pause in easing. Fifty-eight respondents said they expect no rate change during the first quarter, a marked move from December when most had anticipated at least one cut by March.

The survey reveals growing conviction that policy will remain on hold until after Chair Jerome Powell’s term expires in May. Fifty-five of the 100 economists forecast that rate reductions will not resume until June or later, effectively placing the next window for easing under new Fed leadership. Despite the near-term caution, a majority of forecasters still expect at least two rate cuts later in the year, although some warned that a return to hikes cannot be ruled out if inflation or growth surprise to the upside.

Economic data revisions in the poll helped drive the revised timing. Economists lifted their growth outlook modestly, projecting GDP to rise 2.2% in 2025, 2.3% in 2026 and 2.0% in 2027, compared with December’s projections of 2.0%, 1.9% and 2.0% respectively. Forecasters cited stronger growth and persistent inflation running above the Fed’s 2% target on the Personal Consumption Expenditures measure as central reasons limiting scope for near-term cuts.

Market reactions were modest. The U.S. Dollar Index traded near 98.48, around two-week lows and extending losses for a third straight day at the time of the poll, reflecting investor positioning for a patient Fed that may still ease later in the year. Longer-term yields and risk asset performance will likely hinge on whether inflation trends decisively toward target and on the timing of leadership change at the central bank.

Political developments surrounding the Fed also featured prominently in respondents’ thinking. Officials cited threats from the Department of Justice of a criminal investigation into Powell related to renovations at the Fed’s new headquarters, alongside public criticism from President Donald Trump. The president’s effort to remove Fed Governor Lisa Cook is awaiting a Supreme Court hearing. Those tensions have fed market and policy concerns about the central bank’s independence and the potential for governance uncertainty in coming months.

Not all economists ruled out renewed tightening. Several forecasters stressed the fragile balance of risks, noting that stronger-than-expected wages or services inflation could prompt the Fed to put hikes back on the table later this year or into 2027. Jeremy Schwartz, senior U.S. economist at Nomura, said: "The economic outlook on the surface suggests the Fed should remain on hold, maybe even consider putting hikes on the table sometime later this year or next year." He added, "In reality, though, we think the Fed will remain on hold for the remainder of Powell's term through May, but we suspect the new leadership will likely manage to get another 50 basis points of rate cuts later in the year."

The poll marks a clear recalibration of expectations: the near-term path now points to patience, while the back half of the year remains an open question driven by inflation dynamics and political developments at the Fed.