The U.S. Federal Reserve held its benchmark interest rate steady at 4.25% to 4.50% following its June 2025 policy meeting, marking the fourth consecutive meeting without a change in rates. The decision, widely expected by markets, comes amid ongoing economic uncertainty fueled by the Trump administration’s trade tariffs and mixed macroeconomic data.
Powell Stresses Caution Amid Inflation and Tariff Concerns
In a post-meeting press conference, Fed Chairman Jerome Powell reiterated the central bank’s commitment to its dual mandate of price stability and full employment, noting that while the U.S. economy remains solid, inflation continues to hover above target.
“We are well positioned to wait and learn more about the likely course of the economy before making any adjustments to our policy stance,” Powell stated.
Powell pointed to personal consumption expenditures (PCE)—the Fed’s preferred inflation measure—saying early estimates show total PCE prices rose 2.3% year-over-year in May, with core PCE rising 2.6%. These figures suggest a slight uptick from April’s levels (2.1% and 2.5%, respectively), though official data won’t be released until June 27.
Fed Releases Revised Dot Plot: Slower Pace of Easing Ahead
Alongside the policy decision, the Fed released an updated Summary of Economic Projections (SEP). The “dot plot”—which reflects policymakers’ individual rate expectations—showed a shift toward a more cautious approach:
- The median forecast for the federal funds rate at the end of 2025 remains 3.9%.
- For 2026, the rate is projected at 3.6%, up from 3.4% in March.
- For 2027, it rises to 3.4% (previously 3.1%).
- The long-run neutral rate remains unchanged at 3.0%.
The SEP revealed that 7 of the 19 Fed officials expect no rate cuts in 2025, while 8 anticipate two cuts, and 2 project three cuts. This implies a base case of 50 basis points (bps) of easing in 2025, followed by 25 bps cuts in both 2026 and 2027, signaling a more gradual path of rate normalization than earlier forecasted.
Economic Forecasts: Slower Growth, Persistent Inflation
Compared to the March projections, the Fed now expects slightly slower growth and more persistent inflation:
- GDP growth in 2025 is forecast at 1.4% (down from 1.7%).
- Unemployment is seen rising to 4.5% (up from 4.4%).
- Headline PCE inflation is now projected at 3.0%, while core PCE is expected at 3.1%, both up from March estimates of 2.7% and 2.8%, respectively.
The Fed emphasized that the full economic impact of recent tariffs remains uncertain, especially as many retailers are still working through inventories acquired before the measures took effect. Powell acknowledged that it is unclear whether the associated price increases will be short-lived or signal a more enduring inflationary trend.
Trump Reignites Criticism of Powell
President Donald Trump, who appointed Powell in 2017, once again expressed dissatisfaction with the Fed chief. Speaking to reporters at the White House, Trump jokingly suggested he might appoint himself as Fed chair, reinforcing his long-standing criticism that Powell has not done enough to stimulate the economy.
Market Reaction: Dollar Dips, Equities Mixed
The market reaction to the Fed’s announcement was relatively muted. The U.S. Dollar Index edged down 0.2%, last trading at 98.62, reflecting investor sentiment that the central bank remains cautious despite lingering inflationary pressures.
In commodity markets, gold declined 0.29%, settling at $3,379.48 per ounce, while silver slipped 1.03% to $36.72. Equities showed mixed performance:
- The S&P 500 dipped 0.08% to 5,578,
- The Dow Jones Industrial Average fell 0.12% to 42,193,
- The Nasdaq-100 rose 0.49% to close at 21,822.
What’s Next: July and September in Focus
Market participants, tracking rate expectations via the CME FedWatch Tool, see virtually no chance of a rate cut in July, but assign a 70% probability to a rate reduction in September. Powell’s cautious remarks and the revised SEP leave the door open for action later in the year, but highlight the Fed’s preference for waiting until clearer economic signals emerge.
Analyst View: A Wait-and-See Approach Remains Likely
Ahead of the meeting, analysts at TD Securities expected the Fed to hold rates unchanged while revising forecasts toward lower growth, higher unemployment, and elevated inflation—a prediction largely validated by the updated SEP.
Regional Fed Presidents Remain Cautious
Key regional Fed voices echoed this sentiment. Minneapolis Fed President Neel Kashkari noted signs of labor market cooling, but urged patience. Philadelphia Fed President Patrick Harker emphasized the need to observe how changing policies impact the broader economy, stressing that “many paths remain possible.”
As investors digest the Fed’s updated outlook, attention will turn to upcoming economic data and Powell’s future speeches for additional signals on when the long-anticipated rate cuts might begin.
