Deutsche Bank Forecasts Three Federal Reserve Rate Cuts in 2025 Amid Economic Slowdown

Deutsche Bank economists have increased their forecast for the number of Federal Reserve rate cuts in 2025 from two to three, citing a slowing labor market and declining inflation. The bank now expects the Federal Reserve to cut interest rates by 25 basis points in September, October, and December. Previously, the bank had predicted rate cuts only in September and December.

In its June 2025 policy meeting concluding Wednesday, the Federal Reserve decided to maintain interest rates within the range of 4.25% to 4.5%, a level held since December 2024. This decision came amidst a complex economic backdrop featuring the impact of President Donald Trump's tariffs, Middle East tensions, and mixed economic indicators including inflation and labor market data. While no immediate rate changes were enacted, Federal Open Market Committee (FOMC) members indicated the likelihood of some rate cuts later this year, although opinions varied widely on the timing and magnitude of such reductions. According to meeting minutes released June 17-18, most officials believe modest tariff-induced inflation may be temporary, but they see potential for weakening economic growth and hiring, which could warrant monetary easing. The committee’s median forecast currently expects two quarter-percentage-point rate cuts this year, consistent with market pricing; however, shifts in a few members’ views could reduce that to just one. Inflation forecasts were revised upward, with the Fed increasing the expected price growth in 2025 from 2.7% to 3%, while economic growth projections were lowered to 1.4% from 1.7%. Labor market data revealed troubling signs such as continuing jobless claims rising to nearly 2 million, the highest since November 2021, alongside historically low hiring rates and declining labor force participation. Despite these warning signals, Chair Jerome Powell emphasized in line with prior remarks that the current policy stance remains appropriate without urgent action, stressing a “wait-and-see” approach while maintaining focus on inflation control. Market participants now largely price in the next interest rate cut for September, marking one year after an abrupt 0.5% cut executed in response to labor concerns. The Fed’s challenge remains balancing its dual mandate to sustain low unemployment and inflation amid the complex influences of tariffs and geopolitical risks. The central bank’s June outlook highlighted a stagflationary environment where inflation remains elevated while economic growth slows. Officials agreed continued caution is necessary as the economic outlook and inflation uncertainty persist. Overall, the Fed’s cautious tone and distribution of individual member projections reflect ongoing internal debates about future monetary policy, with clear consensus for holding steady now but openness to course corrections as fresh data arrives.