The Fed Hits Pause — And May Stay There Longer Than Expected
The era of imminent interest rate cuts just hit a major speed bump.
According to a new Reuters survey of economists, the U.S. Federal Reserve is now expected to hold its key interest rate steady through this quarter — and possibly until Chair Jerome Powell’s term ends in May. That’s a sharp shift from just a month ago, when most forecasters anticipated at least one cut by March.
What changed? A stubbornly strong economy, inflation that refuses to fully cool, and a growing cloud of political tension surrounding the central bank.
Strong Growth, Sticky Inflation: The Case for Holding Rates
At 3.50%–3.75%, interest rates are already restrictive — but economists say the data doesn’t yet justify easing.
The U.S. economy expanded at a robust 4.3% pace in the third quarter, and growth is now projected at 2.3% this year, slightly higher than last year and well above the Fed’s estimated non-inflationary growth rate of 1.8%.
Meanwhile, inflation remains uncomfortable:
The Fed’s preferred PCE inflation measure is expected to stay above 2% throughout 2025
It’s forecast to average above target every year through 2028
With growth holding firm and price pressures lingering, many economists argue the Fed’s safest move is no move at all.
“The economic outlook on the surface suggests the Fed should remain on hold,” said Jeremy Schwartz of Nomura, one of last year’s most accurate U.S. forecasters.
A Fed Divided — and Under Pressure
All 100 economists surveyed expect the Fed to keep rates unchanged at its January 27–28 meeting. But beyond that, opinions fracture.
58% now expect no rate cuts this quarter, a big reversal from last month
55% believe cuts could resume after Powell’s term ends in May
Most still expect at least two cuts later this year
Complicating the outlook is intensifying political pressure.
President Donald Trump has repeatedly criticized Powell for not cutting rates aggressively. Tensions escalated further after the Justice Department filed criminal charges against Powell related to renovations at the Fed’s headquarters. Trump’s attempt to remove Fed Governor Lisa Cook is also pending before the Supreme Court.
The result? Heightened concern across markets and policy circles about political interference in the Fed’s independence.
What Happens After Powell?
Powell’s term ends in May — and attention is already shifting to who comes next.
Treasury Secretary Scott Bessent recently said Trump could announce his pick for the next Fed chair as early as next week. But economists warn that replacing Powell won’t be simple.
“There’s going to be more pushback than ever on the selection of the next chair,” said Bernard Yaros of Oxford Economics. “I don’t expect Trump to be able to fill the Fed with people who will cut interest rates.”
Still, some economists believe new leadership could open the door to as much as 50 basis points of cuts later this year.
The Bigger Economic Picture
Looking ahead, economists see steady — not spectacular — growth:
GDP growth is expected to average 2% through 2028
Unemployment is forecast to remain stable at 4.5% this year
Yaros, last year’s most accurate forecaster, is even more optimistic, projecting 2.8% growth this year. He points to AI investment and new tax cuts as powerful tailwinds, estimating they could add 0.6 percentage points to annual GDP growth.
But there’s a trade-off: stronger growth could keep inflation elevated for longer.
Bottom Line: Higher for Longer… For Now
The message from economists is clear:
Rate cuts aren’t gone — they’re just delayed.
As long as the economy keeps growing and inflation stays above target, the Fed is likely to sit tight, even amid political noise. The next big turning point may not come from economic data, but from who controls the Fed after May.
Until then, markets should prepare for a familiar reality: higher rates, longer patience, and a lot of uncertainty.