Karla Barker 
The Federal Reserve is widely expected to keep its policy interest rate unchanged for the foreseeable future, with many economists now pushing back expectations for any cut until 2026.
According to a Reuters poll conducted between May 14 and 19, 83 of 101 economists surveyed predicted the federal funds rate would stay between 3.50% and 3.75% through the end of the third quarter. This marks a notable shift from last month, when slightly more than half shared that view.
Rate Cut Hopes Fade Quickly
The data shows a significant change in market sentiment. Last month, more than two-thirds of economists expected at least one rate cut this year. That figure has now dropped to less than half. Nearly half of participants believe the Fed will not take any action before 2026. About a third still expect a single cut late this year, likely in December. Four economists predicted at least one rate hike.
Meanwhile, futures markets are pricing in a 25 basis point rate hike by the end of January. The yield on the US 10-year Treasury note has climbed above 4.6%, hitting its highest level in a year.
Inflation Fears and Energy Prices
The main driver behind this shift appears to be inflationary pressures triggered by rising energy prices following the Iran war. Most economists believe this pressure will be temporary—86% said they view current inflation as transitory. However, Scott Anderson, Chief Economist at BMO Capital Markets, warned that economists have recently failed to predict inflation accurately, noting the global economy may have entered a phase where more frequent shocks are possible.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, came in at 3.5% year-on-year—the highest reading since May 2023 and well above the 2% target. Economists expect PCE to fall to 3.9% in Q2, 3.7% in Q3, and 3.4% by year-end, roughly 25 basis points higher than last month’s estimates.
Fed Officials Lean Toward Patience
At the Fed’s April meeting, three policymakers voted against removing language hinting at potential rate cuts. One member called for a cut directly. Officials have since become more cautious, citing uncertainty from the US war with Iran. Aditya Bhave, Head of US Economics at Bank of America, said both rate increases and decreases are possible, but the base case is a “wait-and-see” approach, with cuts more likely next year.
Economists also believe it is unlikely the incoming Fed Chairman, Kevin Warsh, will implement aggressive cuts demanded by President Donald Trump.
On the economic front, the survey showed little change in unemployment or growth forecasts. The jobless rate is expected to stay around 4.3%, and economic growth is projected to average roughly 2%. For now, the big news is that the Fed seems stuck in neutral, at least for the rest of the year.
*This is not investment advice.*