Fed To Respond To Inflation

Fed To Respond To Inflation by Emily Clark last updated on March 11, 2025

Fed To Respond To Inflation And Labor Market

According to economists, the US Federal Reserve will give a strong & systematic response to any changes in the labor market & inflation.

They also highlighted that the financial markets will remain sensitive to the economic data from the USA. If we look back, Fed has been acting this way since the year 2022.

First Rate Cut To Happen In June 2025

In fact, the Fed's policy is now shaped heavily by the inflation data and the situation of the labor market. Overall, it seems that the economists are correct, as that's what the Fed did when the inflation started rising in 2021.

For now, the target range for the interest rate in the USA is between 4.25 - 4.50%. Also, a recently released survey showed that the business activity in the USA is at 17-months low.

This reading has now increased the chances of a big rate cut worth 0.50% at the next meeting. Even if it doesn't happen at the next meeting, it is definitely coming this year at the very minimum.

The economists also added that the fear of weak economic growth is now a bigger threat for the Fed as compared to inflation resurgance. This can be confirmed based on the recent surveys and the Fed comments.

Also, the markets are forecasting that the first-rate cut of 2025 will likely happen sometime during June. After that, the next policy rate cut by the Fed could happen sometime in October.

key risk to these rate cuts is the policies from President Donald Trump. There's no forecasting what's coming next from the Trump administration.

So, if the rate cuts get delayed due to the unexpected policy decisions by Trump, things will change drastically.

But if things stay on course, the key factors that will dictate the Fed's policy will be the inflation rate and the labor market situation.