How deeply will the Fed cut rates in the rest of 2025? Here's what economists are expecting

"There are typically two different approaches the central bank takes to lowering borrowing costs: Either a measured pace that reflects a modest adjustment to its key rate, or a much more rapid set of cuts as the economy deteriorates in an often-doomed effort to stave off recession. For now, most economists expect the Fed will take the first approach: What many analysts call a "recalibration" of rates to keep the economy growing and businesses hiring."

"Wall Street traders expect three reductions this year and then two more by next June, according to futures pricing tracked by CME Fedwatch. A rate cut Wednesday would be the first in nine months. The Fed, led by Chair Jerome Powell, reduced borrowing costs three times last year. But it then put any further cuts on hold to evaluate the impact of President Donald Trump's sweeping tariffs on the economy."

"Since then, however, the government has reported a sharp slowdown in hiring, and previous government data has been revised much lower. Employers actually cut back slightly on their payrolls in June, shedding 13,000 jobs, and added just 22,000 in August. The government also said last week that its estimate of job gains for the year ended in March 2025 would likely be revised down by 911,000, a sharp reduction in total employment."

The Federal Reserve is widely expected to lower its key interest rate by a quarter-point to roughly 4.1% on Wednesday. Policymakers face two paths for easing: a measured recalibration of rates or rapid cuts in response to a deteriorating economy, with most economists favoring the recalibration option. Futures markets imply three cuts this year and two more by next June, while analysts envision up to five reductions by mid-2025. Recent labor data show a sharp slowdown in hiring, with payrolls falling in June and modest gains in August and a large downward revision to annual job gains.

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