The Fed meets this week. It's expected to stand pat. The big question is for how long.

By Greg Robb

Might we have already seen the last rate cut for the foreseeable future?

Federal Reserve Chair Jerome Powell appears during his press conference in early December.

Federal Reserve officials have signaled clearly that they intend to leave their benchmark interest rate unchanged this week, leaving economists to debate a larger question - how long will the central bank stay on the sidelines?

Expectations of quick further cuts are evaporating. The market doesn't see another move until July. But waiting for six months also dims the prospect of any move.

"The longer they wait to cut, the higher the hurdle becomes to justify on economic grounds the need to ease further," said Sarah House, senior economist at Wells Fargo.

While further cuts at some point remain the consensus, a few economists are starting to doubt this.

Michael Feroli, chief U.S. economist at J.P. Morgan, forecasts the Fed will be on hold all year. The next Fed move will be a hike in the latter half of 2027, he said,

Fed officials will meet for two days starting Tuesday and announce a decision at 2 p.m. Eastern on Wednesday. Fed Chair Jerome Powell will follow up with a press conference a half hour later. The Fed lowered its benchmark rate by 75 basis points at three successive meetings starting in September to a range of 3.5%-3.75%.

Even though inflation remains well above the Fed's 2% target, the majority of Fed officials backed last year's easing because the labor market was looking frail. Officials want to get inflation lower but not at the high cost of a recession.

Read: The Fed faces a grim milestone - inflation above target for five years

President Donald Trump's tariff policy continues to roil the economy. Faced with policy choices not seen since before World War II, economists are cautious in their outlook.

Government statistics since the end of last fall's government shutdown seem to show more solid activity and a more stable labor market than many had expected. The unemployment rate retreated to 4.4% in December. Still, economists seem wary.

In an interview, Diane Swonk, chief U.S. economist at HSBC, said the Fed was "between a rock and hard place." On the one hand, inflation has been sticky. On the other hand, there seems to be no income growth to help strengthen the labor market and power the economy forward, she said.

At the Fed, there is a divide between not only those increasingly concerned about a lack of momentum in hiring and those still focused on lingering elevated price pressures, said Lindsey Piegza, chief economist at Stifel, in a note to clients. There is also worry among at least some Fed officials that any further policy easing could risk an acceleration in inflation, she said.

Fed officials will be reluctant to cut again until there is clear evidence that inflation is on a downward trend, said former Dallas Fed President Robert Kaplan, in a CNBC interview.

"We may get it [soft inflation], but they want to see it," Kaplan said,

Improvement in inflation is expected, but not until the second half of the year. Inflation is expected to spike in the first quarter as companies reset their prices.

Financial markets don't have the first rate cut priced in until July, after Powell's term as chair ends in May.

Many economists think the new Fed chair will push quickly for lower rates. For months, market pros thought the new chair would automatically mean rate cuts.

But the bond market has switched gears and looks like it would react negatively to that prospect, pushing long-term rates higher if the Fed cuts aggressively, said Brian Bethune, an economist at Boston College.

Scott Anderson, chief U.S. economist at BMO Capital Markets, said he thinks there will be a hawkish tilt to the Fed's statement Wednesday and to Powell's press conference.

"There's no real urgency for the Fed to act in any direction at the moment," he said in an interview. But Anderson still expects three cuts this year as inflation cools.

David Mericle, chief U.S. economist at Goldman Sachs, sees a rate cut in June followed by a final cut to the cycle in September, bringing rates down to a range of 3.25% to 3.5%.

"We see the risks over the next year or two as tilted to the downside because we think hikes are quite unlikely, but could imagine a few reasons for additional cuts," Mericle said in a note to clients.

-Greg Robb

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