NEW YORK, March 2025 – In a significant divergence from prevailing market sentiment, JPMorgan Chase & Co. has presented a base case scenario forecasting that the U.S. benchmark interest rate will remain unchanged throughout 2025. This JPMorgan interest rate forecast, reported by CoinDesk citing Reuters, directly contrasts with current futures market pricing, which anticipates two 25 basis point cuts this year. The bank’s analysis introduces a crucial debate about the Federal Reserve’s policy trajectory amid persistent economic crosscurrents.
JPMorgan’s Interest Rate Forecast: A Detailed Analysis
JPMorgan’s economists project a static federal funds rate for the remainder of 2025. Consequently, they envision the first potential policy shift as a 25 basis point increase, tentatively scheduled for the third quarter of 2027. This extended timeline for monetary tightening underscores the bank’s cautious outlook on inflation normalization. The forecast relies on a complex assessment of lagging economic indicators and structural price pressures. Furthermore, it reflects a belief that the Fed will prioritize its inflation mandate over growth concerns in the near term.
This stance emerges from detailed modeling of core inflation trends and labor market dynamics. JPMorgan’s team emphasizes the historical stickiness of services inflation following supply shocks. Therefore, they argue that premature easing could risk re-accelerating price growth. The analysis incorporates global factors, including geopolitical tensions and commodity price volatility, which complicate the disinflation process. Importantly, the bank acknowledges conditional scenarios where its outlook could change.
Market Expectations Versus Institutional Forecasts
The CME Group’s FedWatch Tool, which tracks Federal Funds futures market pricing, currently tells a different story. Market participants are actively pricing in approximately two 25 basis point rate cuts within 2025. This divergence between Wall Street bank forecasts and derivative market pricing highlights significant uncertainty. Traders often react to short-term data prints, while institutional economists build longer-term models. This gap represents one of the largest disconnects in monetary policy expectations since the 2022 hiking cycle began.
Several factors contribute to the market’s more dovish positioning. Recent softer inflation readings and modest signs of labor market cooling fuel expectations for policy relief. Additionally, concerns about economic growth momentum and tightening financial conditions influence trader sentiment. However, JPMorgan’s report suggests the market may be underestimating the Federal Reserve’s resolve. Past cycles show the Fed often maintains restrictive policy longer than markets anticipate to ensure inflation is decisively contained.
The Conditional Path for Potential Rate Cuts
JPMorgan’s analysis is not absolute. The bank explicitly outlines conditions that could revive the possibility of rate cuts in 2025. A material weakening of the labor market, characterized by sustained increases in unemployment claims and a drop in job openings, represents one key trigger. Similarly, a more rapid deceleration in inflation, particularly in core services excluding housing, could prompt a reassessment. The bank’s models are sensitive to incoming data, especially from the Personal Consumption Expenditures (PCE) index.
Federal Reserve Chair Jerome Powell and other officials have consistently emphasized a data-dependent approach. Their recent communications stress the need for “greater confidence” that inflation is moving sustainably toward the 2% target. JPMorgan’s forecast aligns with this high-confidence threshold, implying current data does not yet meet the Fed’s strict criteria for easing. Historical precedent shows the Fed prefers to err on the side of overtightening rather than risking a resurgence of inflation.
Economic Context and Historical Precedents
The current monetary policy landscape is unique in modern history. The post-pandemic inflation surge required the most aggressive Fed hiking cycle since the early 1980s. Bringing inflation down from a peak of over 9% to near 3% involved raising the federal funds rate from near-zero to a 5.25%-5.50% range. The “last mile” of disinflation, from 3% to the 2% target, often proves most challenging. Structural changes in the economy, including deglobalization trends and demographic shifts, may sustain higher neutral interest rates.
Analysts frequently examine the mid-1990s for historical parallels. Then, the Fed under Alan Greenspan engineered a soft landing by cutting rates modestly after a hiking cycle. However, the inflation starting point was lower, and globalization was accelerating. Today’s environment features reversed globalization pressures and massive fiscal stimulus hangovers. These differences support JPMorgan’s argument for prolonged policy stability. The bank’s 2027 hike projection suggests a view that the neutral rate has risen permanently.
Implications for Financial Markets and the Economy
A “higher for longer” rate environment carries profound implications. For financial markets, it suggests continued pressure on growth-oriented technology stocks and longer-duration assets. Conversely, it supports profitability for traditional banking and financial sectors through wider net interest margins. In the real economy, businesses face sustained higher capital costs, potentially slowing investment and hiring. Consumers continue dealing with elevated borrowing costs for mortgages, auto loans, and credit cards.
The housing market remains particularly sensitive. Mortgage rates closely track the 10-year Treasury yield, which is influenced by Fed policy expectations. JPMorgan’s forecast implies mortgage rates may stabilize at current levels rather than decline significantly. This could prolong affordability challenges and suppress transaction volumes in the housing sector. Commercial real estate, especially office space, faces refinancing risks as low-rate loans from the pre-2022 era mature. Policymakers must balance these financial stability concerns against inflation objectives.
Expert Perspectives on Monetary Policy Divergence
Economists across Wall Street are divided, mirroring the JPMorgan-market split. Some analysts at Goldman Sachs and Morgan Stanley maintain forecasts for mid-2025 rate cuts, citing progress on inflation and a softening labor market. Others, particularly at institutions like Deutsche Bank, align more closely with JPMorgan’s cautious stance. This professional disagreement reflects genuine uncertainty about economic lags and model reliability post-pandemic. The Fed’s own Summary of Economic Projections (SEP) will provide the next critical signal in June.
Academic experts highlight the unusual nature of the current cycle. The massive fiscal response to the pandemic, followed by supply chain rebuilding and energy transition investments, has altered traditional economic relationships. Standard Phillips Curve models, linking unemployment to inflation, have performed poorly. This complexity makes forecasting exceptionally difficult and justifies a range of professional opinions. The Fed itself has acknowledged reduced forward guidance, opting for meeting-by-meeting assessment instead.
Conclusion
JPMorgan’s 2025 interest rate forecast presents a compelling, data-driven case for monetary policy stability. By projecting an unchanged US benchmark rate, the bank challenges prevailing market optimism for near-term easing. This analysis rests on a cautious interpretation of inflation persistence and the Federal Reserve’s reaction function. While conditional on labor market or inflation surprises, the base case underscores the high bar for policy shifts. Investors, businesses, and policymakers must now weigh this institutional perspective against incoming economic data. The ultimate path of rates will hinge on the evolving balance between growth, employment, and price stability.
FAQs
Q1: What is JPMorgan’s exact forecast for the US benchmark interest rate in 2025?
JPMorgan’s base case forecast is for the federal funds rate to remain unchanged throughout 2025. The bank does not anticipate any rate cuts or hikes this year, with the next projected move being a 25 basis point increase in Q3 2027.
Q2: How does JPMorgan’s forecast differ from what financial markets expect?
Financial markets, as measured by the CME FedWatch Tool, are currently pricing in approximately two 25 basis point rate cuts during 2025. This creates a significant divergence, as JPMorgan expects no cuts and a much longer period of policy stability.
Q3: Under what conditions would JPMorgan reconsider its no-cut forecast for 2025?
The bank identified two primary conditions: a material weakening of the labor market, such as rising unemployment, or a more rapid deceleration in inflation than currently anticipated, particularly in core services prices.
Q4: What is the current US benchmark interest rate, and how did we get here?
The federal funds rate target range is currently 5.25%-5.50%. The Federal Reserve raised rates aggressively from near-zero in March 2022 to combat post-pandemic inflation, executing 11 increases over 16 months in the most rapid tightening cycle in decades.
Q5: Why is the “last mile” of inflation reduction considered particularly difficult?
Reducing inflation from high levels to moderate levels is often driven by easing supply constraints and moderating demand. The final move to a stable 2% requires aligning inflation expectations and wage growth sustainably, a process influenced by persistent services inflation and changing labor market dynamics.
