Fed holds key rate steady
WASHINGTON – The Federal Reserve on Wednesday kept interest rates steady amid expectations of higher inflation and lower economic growth ahead, and still pointed to two reductions later this year.
With markets expecting no chance of a central bank move this week, the Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December.
Along with the rate decision, the committee indicated, through its closely watched “dot plot,” that two cuts by the end of 2025 are still on the table. However, it lopped off one reduction for both 2026 and 2027, putting the expected future rate cuts at four, or a full percentage point.
The plot indicated continued uncertainty from Fed officials about the future of rates. Each dot represents one official’s expectations for rates. There was a wide dispersion on the matrix, with an outlook pointing to a fed funds rate around 3.4% in 2027.
Seven of the 19 participants indicated they wanted no cuts this year, up from four in March. However, the committee approved the policy statement unanimously.
Economic projections from meeting participants pointed to further stagflationary pressures, with participants seeing the gross domestic product advancing at a 1.4% pace in 2025 and inflation hitting 3%.
GDP forecast comes down
The revised forecasts from the last update in March represented a decrease of 0.3 percentage point for GDP and an increase of the same amount for the personal consumption expenditures price index. Core PCE, which eliminates food and energy prices, was projected at 3.1%, also 0.3 percentage point higher. The unemployment outlook saw a small revision, up to 4.5%, or 0.1 percentage point higher than March and 0.3 percentage point above the current level.
The FOMC statement changed little from the May meeting. Broadly speaking, the economy grew at a “solid pace,” with “low” unemployment and “somewhat elevated” inflation, the committee said.
Moreover, the committee indicated less concern about the gyrations of the economy and the clouds over White House trade policy.
“Uncertainty about the economic outlook has diminished but remains elevated. The Committee is attentive to the risks to both sides of its dual mandate,” the committee said.
During a news conference, Federal Reserve Chairman Jerome Powell suggested there is time to wait for more clarity.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policies,” Powell said.
U.S. stocks were wavering near flatline in the wake of the announcement.
Trump pushes for rate cuts
While the Fed’s statement did not elaborate on why uncertainty has ebbed, President Donald Trump has eased some of his fiery trade rhetoric and the White House is in the midst of a 90-day negotiating period over tariffs.
Trump’s rhetoric toward the Fed, however, has not softened.
Earlier Wednesday, the president again slammed Powell and his…
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