The Federal Reserve on Wednesday kept its benchmark interest rate unchanged, holding the target range at 4.25% to 4.5%, while continuing to signal that two rate cuts remain likely before the end of 2025.
The decision came as the central bank faces a challenging mix of rising inflation and slowing economic growth, and amid persistent pressure from former President Donald Trump to ease monetary policy.
Markets had widely expected no change at the June meeting, and the Federal Open Market Committee (FOMC) approved the decision unanimously.
But the closely watched “dot plot” projections suggested diverging views among policymakers about the path ahead.
“With the Dots remaining largely unchanged, the Treasury market really may be relatively constrained, at least until Powell speaks. We wouldn’t take the Statement of Economic Projections as ‘dovish’ per se, but only dovish compared with most expectations. It’s line with ours — at least for this meeting,” said Joseph Richter, Bloomberg Intelligence editor.
Policy projections reveal growing divide among Fed officials
While the committee maintained its forecast for two rate cuts in 2025, it trimmed expectations for further cuts in 2026 and 2027.
The new outlook includes just four cuts in total over the next three years, down from six in previous forecasts.
Seven of the 19 policymakers indicated no support for any cuts this year, up from four in March, highlighting growing divisions within the Fed.
The median forecast now sees the federal funds rate at approximately 3.4% by 2027, underlining persistent uncertainty about the central bank’s long-term policy direction.
“Uncertainty about the economic outlook has diminished but remains elevated,” the committee said, adding that it remains alert to risks on both inflation and employment fronts.
Stagflation concerns rise as inflation ticks up, growth slows
Economic projections released alongside the policy decision point to stagflationary risks.
Officials lowered their 2024 GDP growth forecast to 1.4%, down from 1.7% in March.
Meanwhile, inflation estimates rose, with the personal consumption expenditures (PCE) price index now expected to hit 3%, up 0.3 percentage points.
Core PCE, which strips out volatile food and energy prices, was also revised up to 3.1%.
The unemployment rate is now projected to rise slightly to 4.5%, up from 4.4% previously.
Despite these pressures, the Fed’s official statement was largely unchanged from its May version, noting that the economy continues to grow at a “solid pace,” with “low” unemployment and “somewhat elevated” inflation.
Trump lashes out at Powell over reluctance to cut rates
As the Fed maintains its cautious stance, former President Donald Trump has renewed his criticism of Chair Jerome Powell.
Earlier in the day, Trump said interest rates should be “at least two percentage points lower,” accusing Powell of being “stupid” for not pushing the Fed to ease more aggressively.
Trump’s frustration is partly driven by the fiscal burden of servicing the nation’s $36 trillion debt.
Interest payments are expected to exceed $1.2 trillion this year—more than any federal expenditure besides Social Security and Medicare.
High borrowing costs are straining a budget deficit forecast to top $2 trillion, or over 6% of GDP.
External risks and domestic slowdown complicate Fed’s path
While tariffs imposed under Trump’s trade policies have yet to significantly impact inflation, Fed officials remain wary of potential feed-through effects.
Inventories built up ahead of April’s “liberation day” tariff announcements and weakening consumer demand have so far muted price pressures.
However, rising global tensions—particularly between Israel and Iran—pose an additional risk to energy markets and inflation.
At home, signs of economic cooling are becoming more evident.
Retail sales fell by nearly 1% in May, long-term unemployment has crept up, and the housing sector is faltering, with starts falling to their lowest level in five years.
These indicators may eventually provide the Fed with a clearer case for easing monetary policy later this year.
For now, the central bank is holding the line—carefully balancing inflation control with the need to support a softening economy, all under the political spotlight of an election year.
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