Analysts Doubt Fed Will Cut Rates in 2025 as Bond Rally Fizzles

​After the Federal Reserve's latest policy meeting sparked a brief wave of optimism, analysts at CreditSights are pouring cold water on the idea of interest-rate cuts in 2025. While markets initially cheered the Fed’s dovish tone, corporate bond ETFs quickly pulled back, and CreditSights says they remain confident in their call for no cuts this year.

Why the Market Got Ahead of Itself
On Wednesday, the Fed left rates unchanged and maintained its projection for two cuts in 2025. But alongside that guidance, it revised growth expectations downward and raised its inflation and unemployment forecasts—a combination some view as a stagflation red flag.

While traders hoped for a more dovish turn, CreditSights argued the Fed’s economic projections were far from a green light for easing. The analysts cited elevated inflation and persistent market risks, saying Treasury yields are likely to rise from current levels.

ETFs and Corporate Bonds Retreat
Exchange-traded funds tied to corporate bonds gave up their Wednesday gains.
-The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) dipped 0.2%.
-The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) fell 0.1%.
On Wednesday, both ETFs had rallied on Fed optimism, rising 0.6% and 0.7% respectively. That pop now looks more like a reflex rally than a sustained trend.

Meanwhile, credit spreads—the extra yield investors demand for riskier bonds—narrowed slightly but remain vulnerable to any hawkish surprises or further tariff-related economic drag.

QT Slowed, but No Real Pivot
The Fed surprised some by slowing its balance-sheet runoff (quantitative tightening), lowering its monthly Treasury cap from $25 billion to $5 billion starting in April. Chair Jerome Powell emphasized this was a “technical adjustment” with no policy implications. But it was enough to fuel speculation the Fed is preparing to ease conditions more broadly.

Still, Powell downplayed tariff-driven inflation, calling it potentially “transitory,” and emphasized that uncertainty remains “remarkably high” due to the evolving economic impact of Trump’s tariff policy, which may see reciprocal moves by April 2.

Bottom Line: No Cuts, Rising Yields
CreditSights is betting that elevated inflation and persistent global risks will prevent the Fed from cutting rates in 2025. Instead, they expect yields to climb, especially as corporate bond optimism fades and policy uncertainty grows.

Investors hoping for Fed-driven relief may need to rethink their expectations—and prepare for a longer period of higher rates than Wall Street was hoping for.