Chart of the Month | 2025 Rate Cut Outlook: What’s Keeping the Fed on Hold?
In recent years, the Federal Reserve carried out one of the fastest rate-hiking campaigns in history to bring inflation down from a multi-decade high.
For your convenience, we’ve also provided a PDF copy of the Chart of the Month | 2025 Rate Cut Outlook: What’s Keeping the Fed on Hold?
After holding rates high for over 12 months, the central bank started its current rate-cutting cycle in late 2024, lowering rates by a total of -1% between September and the end of December. Where do things stand now? The central bank has two main objectives: (1) price stability, meaning low and stable inflation, and (2) full employment, which refers to conditions that create new jobs and keep unemployment low. The charts below show that the balance between those two goals has shifted in early 2025.
The chart on the left graphs the year-over-year change in the Consumer Price Index (CPI), which measures the change in price for a basket of goods and services. It shows that inflation progress has slowed. In January 2025, CPI rose by +0.5% from the previous month, the largest increase since August 2023. This caused the annual inflation rate to rise to +3.0% compared to December’s +2.9%. While inflation has fallen significantly from its mid-2022 peak of around 9%, progress has stalled, with CPI hovering around 3% since late 2023. This recent data has added to concerns that inflation could remain above the Fed’s 2% target for an extended period.
The chart on the right graphs the U.S. unemployment rate, revealing a labor market that remains strong by historical standards. In January, unemployment fell by -0.1% to 4.0%, the lowest since May 2024. Monthly job growth totaled +143,000, a slowdown from the post-pandemic hiring boom but indicative of steady labor demand. Additionally, job revisions for November and December 2024 were positive, with the U.S. adding +100,000 more jobs than initially reported. While the Fed cited rising unemployment as a reason to start cutting in 2024, recent data suggests the labor market isn’t weakening as much as previously thought.
The latest CPI and unemployment reports underscore the complex economic landscape facing the Fed and the market. The central bank began cutting rates in 2024 as its focus shifted from reducing inflation to supporting the labor market. However, with inflation progress stalling and the labor market holding firm, many believe the Fed will pause its rate-cutting cycle until there is more clarity on both fronts. Reflecting this shift, the Fed held interest rates steady at its January 2025 meeting after three consecutive cuts from September to December 2024. Fed Chair Jerome Powell has also signaled a more patient approach, stating, “We don’t need to be in a hurry” to adjust rates given current economic conditions. Market expectations have adjusted accordingly, with the next rate cut now anticipated in June 2025.
Disclosure
The information and opinions provided herein are provided as general market commentary only – not financial advice – and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.
See Full Disclosures Page
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
Chart of the Month | 2025 Rate Cut Outlook: What’s Keeping the Fed on Hold?
Chart of the Month | 2025 Rate Cut Outlook: What’s Keeping the Fed on Hold?
In recent years, the Federal Reserve carried out one of the fastest rate-hiking campaigns in history to bring inflation down from a multi-decade high.
For your convenience, we’ve also provided a PDF copy of the Chart of the Month | 2025 Rate Cut Outlook: What’s Keeping the Fed on Hold?
After holding rates high for over 12 months, the central bank started its current rate-cutting cycle in late 2024, lowering rates by a total of -1% between September and the end of December. Where do things stand now? The central bank has two main objectives: (1) price stability, meaning low and stable inflation, and (2) full employment, which refers to conditions that create new jobs and keep unemployment low. The charts below show that the balance between those two goals has shifted in early 2025.
The chart on the left graphs the year-over-year change in the Consumer Price Index (CPI), which measures the change in price for a basket of goods and services. It shows that inflation progress has slowed. In January 2025, CPI rose by +0.5% from the previous month, the largest increase since August 2023. This caused the annual inflation rate to rise to +3.0% compared to December’s +2.9%. While inflation has fallen significantly from its mid-2022 peak of around 9%, progress has stalled, with CPI hovering around 3% since late 2023. This recent data has added to concerns that inflation could remain above the Fed’s 2% target for an extended period.
The chart on the right graphs the U.S. unemployment rate, revealing a labor market that remains strong by historical standards. In January, unemployment fell by -0.1% to 4.0%, the lowest since May 2024. Monthly job growth totaled +143,000, a slowdown from the post-pandemic hiring boom but indicative of steady labor demand. Additionally, job revisions for November and December 2024 were positive, with the U.S. adding +100,000 more jobs than initially reported. While the Fed cited rising unemployment as a reason to start cutting in 2024, recent data suggests the labor market isn’t weakening as much as previously thought.
The latest CPI and unemployment reports underscore the complex economic landscape facing the Fed and the market. The central bank began cutting rates in 2024 as its focus shifted from reducing inflation to supporting the labor market. However, with inflation progress stalling and the labor market holding firm, many believe the Fed will pause its rate-cutting cycle until there is more clarity on both fronts. Reflecting this shift, the Fed held interest rates steady at its January 2025 meeting after three consecutive cuts from September to December 2024. Fed Chair Jerome Powell has also signaled a more patient approach, stating, “We don’t need to be in a hurry” to adjust rates given current economic conditions. Market expectations have adjusted accordingly, with the next rate cut now anticipated in June 2025.
Disclosure
The information and opinions provided herein are provided as general market commentary only – not financial advice – and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.
See Full Disclosures Page
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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