Fed's New Stance: Needing 'Reason to Cut' in 2025

Economic experts gathering at the American Economic Association meeting in San Francisco have signaled a major shift in Federal Reserve policy expectations for 2025. The consensus suggests the Fed has entered a “hard pause” phase and may deliver just one rate cut this year, contrary to more aggressive market expectations. Morgan Stanley’s Ellen Zentner interprets the Fed’s recent communication as notably firmer, indicating a more cautious approach to policy changes. Former Obama administration economist Jason Furman emphasizes that the Fed has transitioned from a “might as well cut rates” mentality to requiring specific justification for any reductions. While Karen Dynan of the Peterson Institute projects three possible cuts, the overall outlook suggests limited Fed action unless labor market conditions deteriorate significantly. The economists maintain a generally positive growth outlook for 2025, citing strong stock market performance and improved confidence levels, though they acknowledge significant risks, particularly from incoming Trump administration policies. Growth is expected to moderate to 1.5-2%, down from the fourth quarter’s 3+% pace, with consumers showing increasing signs of strain despite maintaining overall stability.



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