The Federal Reserve's decision to pause interest rate cuts was anticipated by analysts, with no significant market reaction following the announcement. RBC Capital Markets maintains that the Fed is likely done cutting rates at 4.50 percent and expects them to hold for all of 2025.
Despite the pause, a wide range of views still exist regarding future rate cuts. The consensus estimates suggest potential further cuts, influenced partly by policy changes from the new administration. Current forecasts indicate possible rate reductions to 3.50 percent by the end of 2026, though some projections see rates as low as 2.50 percent or as high as 4.75 percent.
Market pricing currently suggests only a slim chance of a rate cut in March, with Fed Chair Jerome Powell stating that policymakers are not in a hurry to lower rates further. However, there remains a belief that additional cuts could occur this year.
Recent economic data and inflation risks have led to increased long-term rates despite previous Fed efforts to lower them. The benchmark 10-year Treasury yield has recently decreased from its January peak, raising questions about whether tariff and trade threats might pose more significant risks to growth than inflation.
Powell refrained from commenting on policy plans related to tariffs, but historical context from similar situations in 2019 suggests that growth risks may outweigh inflation concerns. As such, discussions about higher inflation and fewer future rate cuts may be misplaced.
Uncertainty surrounding potential tariff plans could impact business investments and orders even before any measures are implemented. This uncertainty mirrors factors that contributed to the Fed's "insurance" rate cuts during an economic slowdown in 2019.
The recent decline in Treasury yields is expected to continue within a near-term range of 4.25 percent–4.75 percent for the 10-year yield. While the Fed paused its rate cuts this week, further reductions remain possible.