JPMorgan’s Bold Forecast: US Benchmark Rate to Hold Steady Through 2025 Despite Market Expectations

NEW YORK, March 2025 – In a significant divergence from prevailing market sentiment, global banking giant JPMorgan Chase 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 suggests a potential 25 bp increase may not materialize until the third quarter of 2027, placing its outlook firmly at odds with widespread investor expectations for imminent monetary easing.

JPMorgan’s Interest Rate Forecast and Market Divergence

JPMorgan’s economic team has constructed a detailed projection for Federal Reserve policy. Consequently, their model anticipates a prolonged period of stability for the federal funds rate. Specifically, the bank’s economists see the current target range of 5.25% to 5.50% persisting through the remainder of the year. This stance represents a stark contrast to the narrative dominating financial headlines. Meanwhile, the CME Group’s FedWatch Tool, which tracks Federal Funds futures market pricing, currently indicates a high probability of two 25 basis point rate cuts in 2025. This discrepancy between a major institutional forecast and derivative market signals creates a compelling puzzle for investors and policymakers alike.

The bank’s rationale hinges on a cautious interpretation of recent economic data. Furthermore, JPMorgan emphasizes the Federal Reserve’s stated commitment to achieving its 2% inflation target sustainably. The forecast assumes continued resilience in the labor market and a gradual, rather than rapid, decline in core inflation measures. However, the analysis does include an important caveat. JPMorgan acknowledges that the possibility of rate cuts could re-emerge under specific conditions, namely if the labor market shows significant weakening or if inflation slows more rapidly than their base case anticipates.

Understanding the Federal Reserve’s Policy Framework

To fully grasp the significance of JPMorgan’s forecast, one must understand the Federal Reserve’s dual mandate and current policy landscape. The Fed is legally tasked with promoting maximum employment and stable prices. Following the high inflation period of the early 2020s, the Federal Open Market Committee (FOMC) embarked on an aggressive tightening cycle. This cycle successfully cooled inflation from its peak but left interest rates at a multi-decade high. The central question for 2025 is the timing and pace of policy normalization.

The Data Driving Monetary Policy Decisions

The Fed’s decisions rely on a complex array of economic indicators. Key metrics include:

• Core Personal Consumption Expenditures (PCE) Price Index: The Fed’s preferred inflation gauge, which strips out volatile food and energy prices.
• Non-Farm Payrolls & Unemployment Rate: Primary measures of labor market health and slack.
• Average Hourly Earnings: A critical indicator of wage growth and potential inflationary pressure.
• Consumer Price Index (CPI): A broader, widely watched measure of inflation.
• Gross Domestic Product (GDP) Growth: The overall measure of economic expansion.

Recent trends in these indicators have been mixed. For instance, inflation has moderated but remains above target in certain sticky service categories. Simultaneously, the labor market has shown remarkable resilience, with unemployment hovering near historic lows. This economic duality creates the core tension between JPMorgan’s “hold” forecast and the market’s “cut” expectation. The bank’s model appears to weight labor market strength and persistent services inflation more heavily than the market does.

Historical Context and the Path to 2025

The current monetary policy debate exists within a specific historical context. The post-pandemic economic recovery featured unprecedented fiscal stimulus and supply chain disruptions, which fueled the highest inflation in 40 years. The Federal Reserve responded with its most aggressive hiking cycle since the early 1980s. By mid-2023, the federal funds rate had surged from near zero to over 5%. The economy, however, did not slide into a deep recession as many models predicted, leading to the concept of a “soft landing.”

The timeline below illustrates key recent milestones shaping the current outlook:

This history informs the present caution. Fed officials, burned by initially dismissing inflation as “transitory,” now express a clear desire for more conclusive evidence before shifting policy. JPMorgan’s forecast aligns with this institutional psychology, suggesting the Fed will prioritize certainty over speed.

Economic Impacts of a “Higher for Longer” Scenario

A scenario where the US benchmark rate remains unchanged carries significant implications across the economy. The “higher for longer” interest rate environment affects various sectors differently.

• Consumers & Mortgages: Interest rates on credit cards, auto loans, and new mortgages would stay elevated, continuing pressure on household budgets. The housing market could experience continued low transaction volumes as both buyers and existing homeowners with low-rate mortgages remain hesitant.
• Business Investment: The cost of capital for corporate expansion, equipment purchases, and research would remain high, potentially dampening capital expenditure plans, especially for small and medium-sized enterprises.
• Public Finances: The federal government’s interest expense on its massive debt would continue to consume a larger portion of the budget, influencing fiscal policy debates.
• Financial Markets: Equity valuations, particularly for growth and technology stocks sensitive to discount rates, could face headwinds. The US dollar might maintain strength relative to other currencies where central banks cut sooner, impacting multinational corporate earnings.
• Cryptocurrency and Digital Assets: As noted in the original CoinDesk report, the crypto market remains sensitive to liquidity expectations. A steady rate environment could temper speculative fervor but also reduce a potential tailwind from rapid monetary easing.

Expert Perspectives on the Forecast Divide

Economists and strategists are actively debating the merits of each outlook. Proponents of JPMorgan’s view often cite the lessons of the 1970s, when the Fed prematurely loosened policy, allowing inflation to become entrenched. They argue that the risk of resurgent inflation still outweighs the risk of a mild economic slowdown. Conversely, analysts siding with the market’s expectation for cuts point to leading indicators suggesting a cooling economy, moderating wage growth, and the long lag time of monetary policy, which means today’s restrictive stance will continue to bite for months.

This expert divide underscores the inherent uncertainty in economic forecasting. The actual path of policy will be data-dependent, decided meeting-by-meeting by the FOMC. Upcoming releases on employment, inflation, and consumer spending will therefore carry immense weight, potentially validating either JPMorgan’s cautious stance or the market’s more optimistic pricing for cuts.

Conclusion

JPMorgan’s forecast for an unchanged US benchmark rate in 2025 presents a sober counter-narrative to the dominant market expectation for interest rate cuts. This JPMorgan interest rate forecast highlights the ongoing tension between a resilient economy and the Federal Reserve’s unfinished battle against inflation. The divergence itself is a critical market signal, reflecting deep uncertainty about the final stage of the post-pandemic economic cycle. Ultimately, the actual policy path will hinge on the evolving data on employment, wages, and prices. For investors, businesses, and consumers, understanding this debate is crucial, as the decision to hold or cut rates will profoundly influence financial conditions, asset prices, and economic opportunities throughout the year and beyond.

FAQs

Q1: What is the current US benchmark interest rate?
The federal funds target range is currently 5.25% to 5.50%, set by the Federal Reserve. This is the rate at which depository institutions lend reserve balances to each other overnight and forms the basis for most other interest rates in the economy.

Q2: Why does JPMorgan’s forecast differ from the market’s expectation?
JPMorgan’s economic team appears to place greater emphasis on the strength of the labor market and the persistence of certain inflation components, particularly in services. The market, as reflected in futures pricing, may be more focused on leading indicators of economic cooling and the historical tendency for the Fed to cut rates following a hiking cycle.

Q3: What would trigger the Federal Reserve to cut interest rates in 2025?
According to Fed guidance and analyst interpretation, the Fed would likely consider rate cuts if there is clear, sustained evidence that inflation is moving convincingly toward its 2% target, especially if accompanied by a material weakening in the labor market.

Q4: How does a “higher for longer” rate environment affect the average person?
It means continued higher costs for borrowing via mortgages, car loans, and credit cards. Savers may benefit from higher yields on savings accounts and CDs. It can also slow economic growth, potentially impacting job creation and wage growth over time.

Q5: What is the significance of the 2027 rate increase mentioned by JPMorgan?
JPMorgan’s projection of a potential 25 bp increase in Q3 2027 is part of a long-term policy normalization forecast. It suggests the bank believes that after a prolonged pause, the next move, albeit far in the future, could be a hike rather than a cut, indicating a view that the neutral interest rate (the rate that neither stimulates nor restrains the economy) may be structurally higher than in the pre-pandemic era.