Washington D.C. – June 19, 2025 – In a widely anticipated move, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve announced yesterday, June 18, 2025, its decision to maintain the target range for the federal funds rate at its current level of 4.25% to 4.50%. This marks the fourth consecutive meeting where the central bank has held rates steady, signaling a continued "wait-and-see" approach amidst an economy navigating persistent inflation and evolving global trade dynamics.
Despite keeping rates unchanged, the Fed's updated Summary of Economic Projections (SEP), also known as the "dot plot," indicated that a majority of officials still anticipate two interest rate cuts totaling 50 basis points by the end of 2025. This outlook remains consistent with their March projections, offering a measure of reassurance to markets hopeful for monetary easing later in the year.
Key Takeaways from the FOMC Statement and Chair Powell's Press Conference:
Rates Held Steady: The decision to keep the federal funds rate unchanged was largely expected, reflecting the Fed's cautious stance as it assesses incoming economic data.
Two Rate Cuts Still on the Table for 2025: The "dot plot" projections continue to signal two 25-basis-point rate cuts before the year concludes, maintaining the possibility of easing later in the year. However, the projection for 2026 now indicates one fewer cut, suggesting a slightly higher-for-longer outlook on inflation.
Economic Activity Continues to Expand: The FOMC statement noted that "economic activity has continued to expand at a solid pace," with the unemployment rate remaining low and labor market conditions solid.
Inflation Remains Elevated, with New Risks: While inflation has come down from its peaks, it "remains somewhat elevated." Notably, Chair Jerome Powell highlighted that the impact of new tariffs is expected to accelerate goods inflation over the summer, with many businesses likely to pass these costs onto consumers. The Fed now projects core PCE inflation to reach 3.1% by year-end, an increase from previous forecasts.
Uncertainty Persists but Diminished: The Committee acknowledged that "uncertainty about the economic outlook has diminished but remains elevated." Powell specifically mentioned that uncertainty related to tariffs peaked in April and has been coming down since.
Slower GDP Growth Forecast: The Fed revised down its GDP growth forecast for 2025 to 1.4% from 1.7%, and for 2026 to 1.6% from 1.8%, signaling that trade policy is expected to weigh on economic activity in the coming quarters.
Rising Unemployment Projected: The unemployment rate is now expected to edge higher to 4.5% by year-end, up from the current 4.2%.
Data-Dependent Approach: Chairman Powell reiterated the Fed's commitment to a data-dependent approach, emphasizing that the central bank is "well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance." He stressed that the Fed will not be rushed into premature action and will continue to monitor a wide range of information, including labor market conditions, inflation pressures, inflation expectations, and financial and international developments.
Market Reaction:
Following the announcement, U.S. stock markets ended mixed. The Dow Jones Industrial Average and S&P 500 saw slight declines, while the Nasdaq Composite edged higher. Treasury yields pared earlier losses, with the 10-year note yield showing a slight increase. The U.S. dollar strengthened against major currencies, reflecting market recognition that the path to rate cuts might be more gradual than initially expected.
Looking Ahead:
The June FOMC meeting underscores the Federal Reserve's delicate balancing act as it navigates its dual mandate of achieving maximum employment and price stability. While the central bank remains open to adjusting policy, particularly if inflation clearly trends down, it remains committed to observing how economic data, especially the impact of tariffs, evolves in the coming months. Market participants will now closely watch upcoming economic indicators and future Fed communications for further clues on the timing and extent of potential rate adjustments in the latter half of 2025.