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2 6 C O M M U N I T Y M A G A Z I N E FA L L 2 0 2 5 Cut to the Chase The United States Federal Reserve began easing after a first rate cut in September, marking the transi- tion from its inflation-fighting stance toward a phase of interest-rate normalization. Markets and forecast- ers increasingly expect a modest reduction in the coming months, with subsequent rate cuts to follow in 2026. Yet it is important to recognize the start of easing will not take us back to the near-zero interest rates of the 2010s. The new cycle is likely to feature policy rates that remain historically higher for longer than many anticipate. There are strong structural and policy reasons for this higher baseline. The Fed's own projections point to a funds-rate path that steps down only gradually from restrictive territory, not a quick march toward the lower bound. In the June 2025 Summary of Economic Projections, the most recent publicly available figures, the me- dian participant anticipates the federal funds rate at 3.9% at the end of 2025, 3.6% at the end of 2026, and 3.4% What September's Fed shift now means for manufacturers at the end of 2027. The longer-run estimate, a proxy for the neutral rate, sits at 3%. Even the "destination" is notably above the near-zero world that prevailed for much of the past decade. The futures market cur- rently expects slightly more aggressive cuts over the next 15 months, but with a similar narrative. It expects a federal funds rate of 3.5%–3.75% by the end of 2025 and 2.75%–3% by the end of 2026. Chair Jerome Powell recently cautioned that the neutral rate, the real interest rate that neither stim- ulates nor restricts economic growth, may be higher compared with the 2010s, reflecting shifts in produc- tivity, demographics, fiscal dynamics, and the global balance between desired saving and desired invest- ment. If the neutral rate is higher, the Fed will need a higher nominal policy rate to achieve the same de- gree of restraint or stimulus, even once inflation is near target. That points to a floor on how low rates can reasonably go in this cycle. Market structure is pushing in the same direction. Real yields are positive along the curve, and term pre- mia have reappeared after years of being compressed by global savings, quantitative easing, and disinflation. The New York Fed's ACM model shows Treasury term premia in positive territory in 2025, while U.S. Treasury B I T S & B Y T E S By Dr. Shawn DuBravac, Chief Economist, Global Electronics Association