When Will US Interest Rates Fall? 3 Reasons the Fed Is Hesitant to 'Hike Rates'

Imagine this: the ‘benchmark interest rate’ (a standard for interest rates determined by a central bank based on a nation’s economic conditions)—which serves as the basis for the interest we pay on bank loans or credit cards—can completely change our financial situation depending on how it is set. Recently, economic experts have been divided over the next move by the US Federal Reserve (the Fed). Why on earth is the Fed, the command center of the global economy, agonizing over this without easily raising rates?

Why Is This Important?

The US benchmark interest rate is like a ‘compass’ for the global economy. This is because US interest rates determine the value of the dollar, the world’s reserve currency, and dictate the flow of money even on the other side of the globe. Source 5 When US interest rates are cut, other countries, including South Korea, are influenced and gain room to lower their own benchmark interest rates. Source 5 Conversely, if US interest rates remain high, our own loan interest burdens can increase or exchange rates can become unstable, making it very closely connected to our everyday economy. Source 16

Easy Understanding: Photo Editing Apps and Interest Rates

Shall we compare the Fed’s policy decisions to adjusting a ‘filter’ on a photo editing app? If a photo is too bright (inflation is rising too much), they apply a filter to make it darker (rate hike). Conversely, if a photo is too dark (the economy is stagnant), they use a filter to make it brighter (rate cut).

However, the US economy is currently in a state where it’s truly ambiguous whether the photo is bright or dark. Previously, they kept raising rates to curb inflation, but now a new darkness called economic slowdown is casting a shadow. Source 15 The Fed is agonizing over whether to put more weight on the ‘bright filter’ of inflation or the ‘dark filter’ of the economy.

3 Reasons the Fed Is Hesitant to Hike Rates

First, concerns about slowing employment. If the job market slows down again in the second half of the year, it becomes difficult for the Fed to insist on continuing to raise rates to catch inflation. Source 2 Because if jobs decrease, people’s wallets tighten, consumption decreases, and consequently, there is a risk that the economy will cool down rapidly. Experts believe that if such a situation occurs, the probability of freezing interest rates within the year is high. Source 2

Second, changes in inflationary pressure. Recently, energy prices and the expectation of inflation that people think of are both falling. Source 3 This means that the urgency to unreasonably raise interest rates to catch inflation has lessened significantly compared to before. Source 3

Third, the shift in the Fed’s focus. In the past, the Fed’s top priority was responding to inflation (sustained price increases). However, the center of gravity for policy is now slowly shifting toward responding to economic slowdown and weakness in the labor market. Source 15

Current Situation and Outlook

Market experts judge that the Fed is looking for the right timing to freeze interest rates within the year or shift to a cut. Source 2 In particular, researcher Yoon Yeo-sam of Meritz Securities emphasized that the September Federal Open Market Committee (FOMC) will be the real turning point, and one should watch carefully whether the Fed shifts direction toward a rate cut at that time. Source 2

Moving forward, we must observe how flexibly the Fed responds between its existing goal of price stability and the realistic task of preventing an economic recession. Until the results of the September meeting are released, it is a time when the wisdom of calmly watching how major economic indicators change is needed.

MindTickleBytes’ AI Reporter Perspective

Interest rates are not just numbers; they are like a ‘thermometer’ that regulates the temperature of our economy. The Fed is currently at a stage where it is worried that the body of the economy might become too cold while cooling down inflation that is too hot. As every decision the Fed makes determines our economic perceived temperature, now is the time to pay attention to future changes.

References

1. Benchmark Interest Rate - Namuwiki: https://namu.wiki/w/기준금리

2. Securities Industry "First Fed for Wash, Possibility of Drastic Change Despite Rate Freeze"

   Yonhap News: https://www.yna.co.kr/amp/view/AKR20260618064400008

3. Wall Street Reverses Stance on Benchmark Rate… "Fed to Hike Up to 3 More Times This Year"

   Seoul Economic Daily: https://www.sedaily.com/article/20059129

4. Toss Bank

   US Benchmark Interest Rate in 2024, to be Cut 3 Times [24.03. FED]: https://www.tossbank.com/articles/lowerusrate

5. November 1st Week 2025

   Global Economic Review

   Deloitte Korea: https://www.deloitte.com/kr/ko/our-thinking/global-economic-review/ger-2025-11-1st.html

6. US Interest Rates Higher Than Korea’s Even After Cuts… Possibility of Continued Capital Outflow and Exchange Rate Pressure Next Year: https://www.donga.com/news/Economy/article/all/20251228/133047036/1