Investors may face disappointment if the Federal Reserve does not deliver on expected interest rate cuts over the next two years. Deutsche Bank’s economists warn that the impact of tariffs on inflation makes it difficult to predict the fate of rate reductions. If inflation pushes higher than anticipated, the likelihood of rate cuts decreases.
According to Jim Reid, global head of macro and thematic research at Deutsche Bank, a 200 basis point cut in interest rates over two years is typically associated with a recession. The Fed’s recent decision to cut rates by 100 basis points in the latter part of 2024 was unusual compared to previous periods.
The futures market suggests that the benchmark overnight borrowing rate will slip to 3.93% by the end of the year, but this may not materialize if inflation concerns persist. The Fed targets a range of 4.25-4.5%, and current pricing implies only an 78.5% chance of two quarter-point cuts by the end of 2025.
Even Bank of America is skeptical about the Fed’s willingness to ease monetary policy, citing the risks of tariff-induced inflation and a potential slowdown in the labor market. The bank predicts no Fed cuts this year, with a possible extension into 2026 due to stagflationary pressures.
Source: https://www.cnbc.com/2025/07/23/investors-are-expecting-way-too-many-rate-cuts-from-the-federal-reserve-history-shows.html