The Federal Reserve opted to keep interest rates unchanged at its June meeting, signaling a cautious approach as the central bank navigates an uncertain economic landscape marked by persistent inflation pressures and growing concerns over trade policy impacts.
In his post-meeting remarks, Federal Reserve Chair Jerome Powell emphasized that the economy remains on solid footing, with unemployment holding at a low 4.2% and wage growth outpacing inflation. However, Powell acknowledged that inflation is still running above the Fed’s 2% target, with core personal consumption expenditures (PCE) rising 2.6% over the past year.
“Despite elevated uncertainty, the economy is in a solid position,” Powell said, reiterating the Fed's commitment to its dual mandate of maximum employment and price stability. The Federal Open Market Committee (FOMC) voted to maintain the federal funds rate in the 4.25% to 4.50% range and will continue to reduce the Fed’s balance sheet.
The Fed also lowered its growth expectations, now projecting GDP to rise by 1.4% in 2025, down from earlier estimates. Powell attributed the recent Q1 economic slowdown in part to businesses accelerating imports ahead of potential tariffs, which distorted trade and GDP figures.
Trade policy remained a central concern in Powell’s remarks. Recent tariff increases are expected to push prices higher and dampen economic activity, although their long-term inflation impact remains uncertain. “The effects on inflation could be short-lived… but could also prove more persistent,” Powell warned, emphasizing the importance of keeping long-term inflation expectations anchored.
Looking ahead, the Fed’s Summary of Economic Projections shows the median forecast for the federal funds rate at 3.9% by year-end, consistent with its March estimate. Rates are expected to gradually decline to 3.6% in 2026 and 3.4% in 2027, slightly higher than previously forecast.
The FOMC also continued discussions as part of its ongoing five-year review of monetary policy strategy. Powell noted that updates to the Fed’s framework, including potential enhancements to its communication tools, are expected by late summer.
Powell closed the press conference by reaffirming the Fed’s public mission: “Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals.”
