TD Securities recently said that after Trump’s election win, the market expected a combination of tax cuts and tariffs to push up the Federal Reserve’s neutral interest rate. They revised their forecasts for the Fed, predicting that rising inflation will lead to a slower pace of rate cuts in 2025. The new outlook suggests the Fed will cut interest rates by 25 basis points in November, December, and January, before pausing in March.
The Fed is expected to lower interest rates to 3.5% by the end of 2025, which is higher than the previous expectation of 3.0%. In the first half of 2026, the Fed will cut interest rates to 3.0%. This means that the neutral rate will not change, but the Fed will reach it later.
