Fed keeps rates unchanged and cuts outlook

The Federal Reserve, at its June 2025 meeting, maintained the federal funds rate at 4.25%–4.50% for the fourth consecutive time.

This decision was widely anticipated and reflects the policymakers' cautious approach as they continue to assess the economic repercussions of President Trump’s policies, specifically those concerning tariffs, immigration, and taxation.

Officials acknowledged a reduction in the level of economic uncertainty, though they emphasized it remains elevated. Despite the lingering uncertainties, the Fed's projections continue to indicate two rate cuts later this year. However, their outlook for subsequent years is more conservative, with only one quarter-percentage-point cut anticipated in both 2026 and 2027.

In its updated economic forecasts, the Fed revised down its GDP growth projections, with 2025 downgraded to 1.4% from the March estimate of 1.7%, and 2026 reduced to 1.6% from 1.8%. The 2027 estimate remained unchanged at 1.8%. The unemployment rate is now expected to be 4.5% in both 2025 and 2026, an increase from the previous estimates of 4.4% and 4.3% respectively.

Regarding inflation, measured by the Personal Consumption Expenditures (PCE) rate, the Fed's projections show an uptick in the near term before easing, with 2025 forecasted at 3.0% (up from 2.7%), 2026 expected to ease to 2.4% (a slight increase from the previous 2.2%), and 2027 projected at 2.1% (up from 2.0%), suggesting a slower return to the Fed's target.

This cautious stance underscores the central bank's commitment to carefully navigating the complex economic landscape shaped by ongoing policy developments and evolving global conditions.