Fed Rate Cut: Rabobank Confirms One More Cut Expected in 2025 – Surprising Market Impact

The Federal Reserve will likely deliver one more rate cut in 2025, according to a new analysis from Rabobank. This forecast comes amid shifting market expectations and persistent inflation concerns. Investors now closely watch the Fed’s next move.

Rabobank Forecast: One More Fed Rate Cut Expected

Rabobank’s economists predict a single additional rate reduction this year. They base this view on moderating inflation and a cooling labor market. The bank sees the Fed cutting rates by 25 basis points in the second half of 2025. This would bring the federal funds rate to a range of 4.25% to 4.50%.

Rabobank’s analysis contrasts with more aggressive market pricing. Earlier in 2025, traders expected up to three cuts. Persistent inflation data in Q1 2025 dampened those hopes. Rabobank argues that the Fed will proceed cautiously.

The bank highlights several key factors. Core PCE inflation remains above the Fed’s 2% target. Services inflation, especially in housing and healthcare, proves sticky. Meanwhile, consumer spending shows resilience. This gives the Fed room to wait.

US Monetary Policy: Cautious Path Forward

The Federal Reserve faces a complex balancing act. It must control inflation without triggering a recession. Recent data shows mixed signals. The labor market added 175,000 jobs in April 2025, below expectations. Yet wage growth remains strong at 4.1% year-over-year.

Fed Chair Jerome Powell emphasized a data-dependent approach. In his May 2025 press conference, he stated the Fed needs “greater confidence” that inflation is moving sustainably toward 2%. This cautious tone aligns with Rabobank’s view.

Market participants now price in a 60% probability of a cut at the September 2025 meeting. Rabobank sees this as realistic. The bank expects the Fed to skip the June and July meetings. This allows more time to assess economic data.

Key economic indicators to watch include:

• Core PCE inflation – Currently at 2.7%, needs to fall closer to 2%
• Nonfarm payrolls – Monthly job growth slowing toward 150,000
• Consumer confidence – Remains elevated, supporting spending
• Housing starts – Sensitive to interest rates, showing weakness

Expert Reasoning Behind Rabobank’s Forecast

Rabobank’s senior US strategist, Philip Marey, explains the rationale. “The Fed wants to avoid policy mistakes. Cutting too early could reignite inflation. Cutting too late could damage the economy. One cut in 2025 strikes a balance.”

The bank uses a macroeconomic model incorporating inflation, employment, and GDP growth. This model suggests the economy will slow in Q3 2025. This slowdown will give the Fed cover to ease policy.

Rabobank also considers global factors. The European Central Bank and Bank of England are also easing. This creates a global trend toward lower rates. However, the Fed moves independently based on US data.

Interest Rate Outlook: Market Implications

The interest rate outlook has significant implications for investors. Bond yields have already adjusted. The 10-year Treasury yield fell from 4.5% in January to 4.2% in May 2025. This reflects expectations of lower short-term rates.

Equity markets also react. The S&P 500 gained 8% in 2025, partly on rate cut hopes. Technology stocks benefit most from lower rates. Financial stocks face margin pressure.

The US dollar weakened against major currencies. A lower Fed rate reduces dollar yields. This benefits emerging markets and commodity prices. Gold prices reached new highs above $2,400 per ounce.

Real estate markets show mixed signals. Mortgage rates remain above 6.5%, limiting home sales. Commercial real estate faces stress from high borrowing costs. A rate cut would provide relief.

Timeline of Fed Policy in 2025

Understanding the sequence of events helps contextualize Rabobank’s forecast.

Federal Reserve 2025: Challenges Ahead

The Federal Reserve faces several challenges in 2025. Inflation remains above target. The labor market is cooling but not collapsing. Geopolitical risks add uncertainty.

Trade policy also matters. New tariffs on Chinese goods took effect in April 2025. These tariffs could raise import prices. This would complicate the Fed’s inflation fight. Rabobank notes this risk in its analysis.

The US fiscal deficit remains large at 6% of GDP. This keeps long-term bond yields elevated. The Fed cannot control fiscal policy. But it must account for its effects on the economy.

Political pressure on the Fed is increasing. Some politicians call for more aggressive cuts. The Fed maintains its independence. It focuses on its dual mandate of price stability and maximum employment.

Comparison with Other Major Central Banks

Global monetary policy diverges. The European Central Bank cut rates in April 2025. The Bank of England followed in May. The Bank of Japan remains an outlier, hiking rates slowly.

This divergence affects currency markets. The euro strengthened against the dollar. The yen weakened further. Rabobank’s global team coordinates forecasts across regions.

Emerging market central banks face different pressures. Many cut rates earlier. Now they watch the Fed’s moves. A weaker dollar helps them manage inflation.

Conclusion

Rabobank’s forecast of one more Fed rate cut in 2025 reflects a cautious but data-driven outlook. The Federal Reserve balances inflation control with economic support. Investors should prepare for a slower easing cycle than initially hoped. The focus remains on core inflation and labor market data. This single cut, expected in September, will likely be the last for 2025. Markets must adjust to this reality.

FAQs

Q1: Why does Rabobank expect only one more Fed rate cut in 2025?
A1: Rabobank cites sticky inflation, a resilient labor market, and the Fed’s cautious approach. Core PCE inflation remains above 2%, giving the Fed little reason to cut aggressively.

Q2: When is the next Fed rate cut expected?
A2: Rabobank expects the cut at the September 2025 Federal Open Market Committee meeting. The bank sees the Fed skipping the June and July meetings.

Q3: How will a Fed rate cut affect the stock market?
A3: A rate cut typically boosts stock prices, especially growth and technology sectors. However, if the cut signals economic weakness, markets may react negatively.

Q4: What is the current federal funds rate?
A4: As of May 2025, the federal funds rate is 4.25% to 4.50% after the March 2025 cut. Rabobank expects it to fall to 4.00% to 4.25% after the September cut.

Q5: Could the Fed cut rates more than once in 2025?
A5: Rabobank sees a low probability of multiple cuts. If inflation falls faster than expected or the labor market weakens sharply, the Fed could cut twice. This is not the base case.