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Fed Unlikely to Cut Rates Until December Amid Tariff Uncertainty, Says Deutsche Bank

by Team Lumida
June 10, 2025
in Macro
Reading Time: 5 mins read
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Market Turmoil: How Fed and BOJ Rate Talks Could Shift the Game

"Federal Reserve Bank of Chicago, Bank Heist by Alvin Karpis and the Barker-Karpis Gang" by Chicago Crime Scenes is licensed under CC BY-NC 2.0

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Key Takeaways:

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  • Deutsche Bank predicts the Federal Reserve will hold off on rate cuts until December, followed by two additional reductions in early 2026, bringing rates to a neutral level of 3.625%.
  • The Fed is expected to maintain its current rate range of 4.25% to 4.5% in the near term, citing uncertainty over the inflationary impact of President Trump’s tariff policies.
  • Markets are pricing in a 54.7% chance of a rate cut in September, but recent strong employment data suggests the U.S. economy remains resilient despite tariff headwinds.
  • Inflation data due this week, including the May Consumer Price Index (CPI), will provide further insights into the Fed’s next steps.

What Happened?

Deutsche Bank analysts, led by Amy Yang, forecast that the Federal Reserve will not resume its rate-cutting cycle until December, as the central bank navigates the economic uncertainty caused by President Trump’s aggressive tariff agenda. The analysts expect borrowing costs to eventually settle at a neutral rate of 3.625%, which neither stimulates nor restricts economic activity.

The Fed has kept rates steady at 4.25% to 4.5%, citing concerns over the inflationary and employment impacts of Trump’s sweeping tariffs. While tariffs are expected to drive up prices and weigh on economic activity, recent data, including stronger-than-expected May employment figures, suggest the U.S. economy remains resilient.

Markets, however, remain divided on the Fed’s next move. CME Group’s FedWatch Tool indicates a 54.7% probability of a rate cut in September, but no action is expected at the June and July meetings.


Why It Matters?

The Fed’s cautious approach reflects the complex interplay between inflation, employment, and trade policy. Trump’s tariffs have introduced significant uncertainty, with potential inflationary pressures complicating the central bank’s ability to ease monetary policy.

Deutsche Bank’s projection of delayed rate cuts underscores the Fed’s focus on maintaining economic stability amid these challenges. A neutral rate of 3.625% would signal a shift toward a more balanced monetary stance, but the timing of rate cuts will depend heavily on upcoming inflation data and broader economic trends.

The release of May’s CPI data this week will be a critical indicator for the Fed. Analysts expect inflation to edge higher, with the year-over-year CPI forecast to rise to 2.5% from 2.3%. Core inflation, excluding volatile items like food and fuel, is projected to increase to 2.9%. These figures will shape market expectations for future rate decisions.


What’s Next?

The Fed’s next moves will hinge on key economic data, including May’s CPI report and subsequent producer price and consumer inflation expectation figures. A higher-than-expected inflation reading could delay rate cuts further, while softer data may increase the likelihood of easing later this year.

Investors will also monitor the impact of Trump’s tariffs on inflation and economic activity, as well as the Fed’s commentary at its upcoming meetings. Markets remain focused on the September meeting, where a rate cut is seen as a possibility, but the Fed’s cautious stance suggests it will wait for clearer signals before acting.

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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018