No Rate Cuts Yet: Fed Flags Slower Growth, Sticky Inflation

The Federal Reserve held interest rates steady at 4.25%-4.50% for a fourth straight meeting on Wednesday, aligning with market expectations, while signaling slower growth and hotter inflation ahead compared to its March forecast.

The June Fed statement struck a slightly more confident tone, noting that economic uncertainty has “diminished” compared to March, although stating that it remains elevated. The statement dropped the earlier assessment that risks of both higher inflation and unemployment had risen.

The description of the labor market was updated to say the unemployment rate “remains low,” instead of having “stabilized.”

The key highlight of the June meeting was the release of the Fed’s updated economic projections, with the “dot plot” — a collection of each policymaker’s expectations about future interest rates.

The median preference points to two cuts in 2025, unchanged from the March projection. The 2026 median dot was downwardly revised, suggesting two rate cuts, down from prior expectations of three.

Fed Sees Hotter Inflation, Lower Growth Forecasts

The mid-point of the federal funds rate remains at 3.9% by the end of 2025, and gradually falling to 3.6% in 2026 and 3.1% in 2027. The long-run rate holds steady at 3.0%.

Inflation forecasts moved higher. The Fed sees headline Personal Consumption Expenditure (PCE) inflation rising 3.0% in 2025, versus 2.7% in the March projection.

Core PCE inflation, which strips out volatile food and energy prices, is projected at 3.1% in 2025, compared to 2.8% earlier. Both measures are expected to return to the Fed’s 2.0% target by 2027.

Labor market expectations were only slightly changed. The unemployment rate is projected to rise to 4.5% in 2025, modestly higher than 4.4% in March.

Economic growth, however, saw a downgrade. The Fed now projects real GDP growth at 1.4% in 2025, down from 1.7% in March. Growth in 2026 was downwardly revised from 1.8% to 1.6%.

Markets now await Fed Chair Jerome Powell‘s press conference at 2:30 p.m. ET, as investors look for clues on the timing of future rate cuts. Powell has repeatedly said there is “no rush” to ease policy, noting that current interest rates are “in a good place” to handle economic uncertainties.

On Wednesday, President Donald Trump renewed his pressure on Powell, calling for deep rate cuts of 2 to 2.5 percentage points.

Summary Of Fed Economic Projections (June 2025)

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Image created using artificial intelligence via Midjourney.