The Federal Reserve left interest rates unchanged Wednesday amid uncertainty over when borrowing costs for loans, credit cards and auto financing might ease in 2025.
The Fed’s benchmark rate will stay in a range of 4.25% to 4.5%, keeping borrowing costs elevated in an effort to curb spending and bring down inflation.
The central bank previously penciled in two 25-basis-point rate cuts as part of its projections for 2025, which would bring the benchmark rate to a range of 3.75% to 4% by year-end.
However, the timing of these cuts has become less certain with year-over-year inflation ticking up from 2.5% to 2.9% since September, along with uncertainty about the inflationary effects of President Trump’s proposed tariffs on foreign goods.
A CNBC survey of economists published Tuesday shows that 65% think two rate cuts are expected, down from 78% in a previous survey conducted in December.
Fed chair Jerome Powell said the central bank was entering a “new phase” where it would be “cautious about further cuts,” in a press conference last month. “We know that reducing policy restraint too fast or too much could hinder progress on inflation,” he added.
When to expect more interest rate cuts
While another cut had been expected by March, the perceived odds of one happening by then are just over 28% as of Wednesday afternoon, according to the CME FedWatch Tool, which uses market data to predict Federal Reserve interest rate decisions.
Rate cuts are more likely to come in late spring or early summer, which would keep borrowing costs high for now. That’s because the Fed’s benchmark rate directly impacts rates on auto loans, personal loans and credit cards. While mortgage rates are more closely linked to 10-year Treasury yields, the Fed’s rate still plays an indirect role.
The Fed has been cutting rates since September 2024, starting with a 50 basis point reduction, followed by 25 basis point cuts in November and December, totaling a 1% decrease over three months. This has helped shave at least a few dollars off many people’s monthly debt payments — lowering costs for new loans and auto financing while providing some relief on existing credit card balances.
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