WASHINGTON – The Federal Reserve on Wednesday stabilized interest rates amid forecasts of higher inflation and lower economic growth, pointing to two cuts later this year.
As the market does not expect a central bank’s potential move this week, the Federal Open Market Committee has maintained its main borrowing rate in the range of 4.25% to 4.5% since December.
In addition to the fee decision, the committee has shown that two cuts are still on the table by the end of 2025 through closely monitored “dot plots.” However, we dropped one cut in both 2026 and 2027, bringing the expected future rate cut to four times or a full point.
The plot showed continued uncertainty about future fees from Fed officials. Each dot represents one official’s expectations for the fee. The matrix has a wide variance, indicating that the Fed fund ratio in 2027 was around 3.4%.
Seven of the 19 participants indicated they did not want this year’s cut from four in March. However, the committee unanimously approved the policy statement.
Economic projections from participants at the conference pointed to further pressure on male dogs, with participants seeing GDP moving forward at a 1.4% pace in 2025, with inflation reaching 3%.
The revised forecast from the last update in March represents a 0.3 percentage points decrease in GDP and an equal increase in the Personal Consumption Expense Price Index. Core PCE, which eliminates food and energy prices, rose 0.3 percentage points at 3.1%. The unemployment outlook saw a slight revision, up to 4.5%, or 0.1 points higher than March and 0.3 percentage points higher than current levels.
The FOMC statement has remained little different from the May meeting. Broadly speaking, the economy is growing at a “solid pace” with “low” unemployment rates and “slightly rising” inflation, the committee said.
Furthermore, the committee shows that there are less concerns about the economy and cloud rotation than the White House trade policy.
“Uncertainty about the economic outlook is declining, but remains rising. The committee is paying attention to risks to both sides of its dual mission,” the committee said.
Investors are eager to hear more from Federal Reserve Chair Jerome Powell at the 2:30pm ET press conference. The announcement sparked US stocks retained previous profits.
The statement did not elaborate on why uncertainty has declined, but President Donald Trump has eased some of his intense trade rhetoric, and the White House is in the middle of a 90-day negotiation period over tariffs.
But Trump’s rhetoric against the Fed has not softened.
Earlier on Wednesday, the president again accused Powell and his colleagues of not easing them. Trump said the Fed’s funding rate is at least 2 percentage points lower and the committee needs to accuse Powell of being “silly” because he hasn’t pushed for cuts.
Federal officials were reluctant to move, fearing that the tariffs Trump put into effect this year could cause inflation in the coming months. So far, price gauges have not shown that job duties have had a lot of impact. Ahead of the announcement of the “liberation day” on April 2, delays in tariff feedthrough along with inventory accumulation helped to divert their impact.
The conflict between Israel and Iran adds another wildcard to the policy mix. The statement did not mention the impact from the Middle Eastern Battle.
The gradually softening economy could provide incentives to cut later this year.
Recent labor market data shows that long-term unemployment rates are also rising, with layoffs creeping up, and consumers are spending. Retail sales fell almost 1% in May, with recent data reflecting the cooled housing market, reaching its lowest level in five years.
But for Trump, the importance of lower fees comes from the high costs the government is paying to fund $36 trillion in debt.
Debt interest is robust this year at a total of $1.2 trillion, exceeding all other budget items except Social Security and Medicare. The Fed was last cut in December, with Treasury yields rising year-round, putting additional pressure on the fiscal deficit, which could approach $2 trillion, or more than 6% of GDP.
Revised: Meeting participants hope that GDP will advance at a 1.4% pace in 2025. This is an earlier version of the story that misrepresented the year.
