Deutsche Bank analysts have raised concerns that the Federal Reserve may skip a widely anticipated rate cut in December, citing stronger-than-expected economic resilience, a stabilizing labor market, and inflation persisting above 2.5%. While they still hold to their December rate cut forecast, the risks of a delay are “heightened,” according to the bank’s latest note.
Looking ahead, the case for further rate cuts appears increasingly tenuous. The analysts project the federal funds rate will conclude 2025 at 4.375%, slightly above their estimated neutral range of 3.75%-4.00%. This forecast suggests the Fed could maintain higher rates for an extended period, particularly if inflation remains sticky, labor market momentum builds, or inflation expectations edge higher.
“In 2025, the possibility of two-sided risks to the Fed’s outlook could resurface,” the note states, implying that at some point the Fed might remove its bias toward rate cuts. Any such shift would depend heavily on the trajectory of inflation and the labor market, as well as the impact of new tariffs on economic dynamics.
Deutsche Bank anticipates the Fed will guide interest rates back to a neutral level of 3.75%-4.00% in 2026 and 2027. They expect the effects of tariffs to gradually dampen private domestic demand, creating scope for modest reductions in rates over the longer term.
