Morningstar says that looking ahead into 2025, the Federal Reserve’s rate-cutting will be “shorter and shallower” than previously expected. However, conditions could change, pushing the Fed into a resumption of interest rate hikes, even if seemingly remote.
In mid-December 2024, the Federal Open Market Committee announced a 25-basis-point rate cut, bringing the federal funds rate range from 4.25% to 4.50%, which was expected.
What wasn’t on the bingo card for most people was the prediction of upward inflation pressure in the central bank’s economic projections. The median expectation for Personal Consumption Expenditure inflation for 2025 jumped from 2.1% in September to 2.5% in the December meeting. Going forward, 2026 went from 2.0% to 2.1%. Under the current view, it will take until 2027 to get back to a 2 percent rate of inflation. Also, Core PCE inflation in the median projection is 2.5% this year, 2.2% in 2026, and 2% in 2027.
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