Will the Fed Cut Interest Rates in 2025? New Tariff Moves Could Stall Progress

The outlook for interest rate cuts this year has just become a lot more uncertain and we may have tariffs to thank.

According to Austan Goolsbee, President of the Federal Reserve Bank of Chicago, the latest tariff threats from former President Donald Trump are creating fresh complications for the U.S. economy. In particular, these new trade tensions could delay the Federal Reserve’s timeline for reducing interest rates.

A Shift in Trade Policy, A Shift in Fed Strategy?

In late May, Goolsbee said that the evolving U.S. trade landscape is giving the Fed pause. Trump recently proposed a 50% tariff on European Union goods and called for 25% tariffs on iPhones not manufactured in the U.S., demanding companies like Apple and Samsung shift production to America.

While these announcements are more political than monetary, they still carry serious economic consequences. According to Goolsbee, when trade policies stir inflation and uncertainty, the Fed is forced to re-evaluate its next steps.

Interest Rates: What Happens Now?

The Fed’s current benchmark interest rate sits in a target range between 4.25% and 4.50%, and markets have been anticipating two rate cuts before the end of 2025. However, Goolsbee made it clear that nothing is guaranteed in this environment.

In a recent interview, he emphasized that tariffs can have a “stagflationary” effect slowing down growth while also pushing prices up. That, he said, is “the central bank’s worst-case scenario.”

And the problem isn’t hypothetical. Bond yields have already surged in recent weeks amid rising fears about unstable fiscal and trade policy. Many financial analysts are now warning that the U.S. economy could be heading for stagflation or even a recession in the coming months.

Fed Takes a Wait-and-See Approach

Despite all the noise, Goolsbee hasn’t completely abandoned hope for economic progress. While speaking on CNBC’s Squawk Box, he said the Fed will closely monitor how tariffs impact prices and employment before making a decision.

“We’ll have to see how big the impacts on prices are,” he said. “I know people hate inflation.”

Although Trump initially proposed the tariffs to take effect on June 1, he later postponed them to July 9. That move may give the Fed some breathing room to reassess the economic impact before the next Federal Open Market Committee (FOMC) meeting on June 17–18.

Looking Ahead: Could Rates Still Drop?

While short-term uncertainty looms, Goolsbee remains optimistic about the longer-term outlook. He believes there’s still a chance that rates could come down over the next 10 to 16 months, assuming inflation stabilizes and trade tensions ease.

However, he stopped short of making any firm commitments.

Markets are still pricing in two rate cuts by the end of 2025, with most economists expecting the first move to come around September. That aligns with the Fed’s last official projection, made in March.

But with the current climate of tariff threats and policy shifts, the central bank is clearly treading cautiously.

The Bottom Line

If you’re waiting for mortgage rates or other borrowing costs to drop, the road ahead just got more complicated. While the Fed still sees potential for rate cuts, trade policy disruptions and inflation concerns could easily delay that progress.

For now, the message from policymakers is clear: expect patience, not promises. For more information visit Nadlan Capital Group.