US Federal Reserve Holds Rates Steady, Signals Two Cuts in 2025 Amid Mixed Outlook
The US Federal Reserve’s Federal Open Market Committee (FOMC) concluded its meeting on June 18, 2025, with the following key announcements:
- Interest Rates Unchanged: As widely anticipated, the Fed decided to hold the benchmark federal funds rate steady at the range of 4.25% to 4.5%. This marks the fourth consecutive meeting without a rate change, reflecting a “wait-and-see” approach.
- Two Rate Cuts Still Projected for 2025: Despite concerns about persistent inflation, the Fed’s updated “dot plot” (Summary of Economic Projections) still indicates the median expectation for two rate cuts in 2025, totaling 50 basis points. This is a crucial takeaway, as it reaffirms the Fed’s intent to ease monetary policy later in the year, assuming economic conditions warrant it.
- Revised Economic Projections:
- Higher Inflation: The Fed revised its inflation forecast upwards. The core Personal Consumption Expenditures (PCE) inflation rate is now projected to reach 3.0% by the end of 2025, up from 2.6% in the March projections. This suggests the Fed is factoring in persistent price pressures, potentially influenced by recent tariff changes.
- Slower GDP Growth: Economic growth projections for 2025 were lowered to 1.4%, down from the 2.1% forecasted in March, indicating a more cautious view on economic momentum.
- Slightly Higher Unemployment: The unemployment rate is now expected to edge up slightly to 4.5% by year-end 2025, from 4.2% in May and 4.4% in the March projections.
- Caution and Data Dependence: Fed Chair Jerome Powell emphasized patience and data dependence, stating that the central bank needs to see more progress on inflation before committing to rate cuts. The FOMC statement noted that “uncertainty about the economic outlook has diminished but remains elevated.”
Market Reaction: US stock markets saw a mixed reaction, with the Dow Jones and S&P 500 ending slightly lower, while the Nasdaq Composite edged higher. Treasury yields pared some losses after Powell’s press conference. The overall sentiment remains that while rate cuts are still on the table for 2025, the timing and pace will heavily depend on incoming economic data, especially inflation.