The Federal Reserve kept interest rates unchanged for the fourth straight meeting on June 18, a decision that financial markets widely expected.
The U.S. central bank left the benchmark federal funds rate—a key policy rate that influences consumer borrowing costs and the U.S. government’s debt-servicing payments—at a range of 4.25 to 4.5 percent.
Officials say that economic activity and labor market conditions remained “solid,” adding that inflation continues to be “somewhat elevated.”
“Uncertainty about the economic outlook has diminished but remains elevated,” the Federal Reserve said in a post-meeting statement.
Federal Reserve Board members and regional central bank presidents still anticipate two interest rate cuts this year, with the median federal funds rate expected to finish 2025 at 3.9 percent.
Median forecasts signal higher interest rates than expected over the next two years. In 2026, the key rate is penciled in to be 3.6 percent, up from the March update of 3.4 percent. In 2027, the policy rate is projected to be 3.4 percent, up from 3.1 percent.
The Fed expects economic growth to slow to 1.4 percent this year and 1.6 percent in 2026, down from its March estimates of 1.7 percent and 1.8 percent, respectively.
On the labor front, the unemployment rate is predicted to rise to 4.5 percent this year, slightly above the previous forecast of 4.4 percent.
Officials also believe inflation will be higher. The Personal Consumption Expenditures (PCE) price index, which is the institution’s preferred inflation measure, is expected to rise to 3 percent. Core PCE, which strips out the volatile energy and food categories, could rise to 3.1 percent.
Market Reaction
U.S. stocks pared their gains shortly after the Fed decision.Yields on Treasury securities were mixed, with the benchmark 10-year yield sliding below 4.38 percent.
The U.S. Dollar Index (DXY), a measure of the greenback against a weighted basket of currencies like the British pound and Japanese yen, tumbled about 0.1 percent.
Differences on Inflation
President Donald Trump doubted the Fed would cut interest rates following the two-day policy meeting.Speaking to reporters outside the White House for a flag-raising event, Trump criticized Powell, saying, “he’s costing the country a fortune.”
Reiterating his previous suggestion, Trump stated that if Powell is concerned about inflation rising due to tariffs, then the institution can raise interest rates again.
“If he’s worried about inflation, that’s OK. I understand that. I don’t think there’s going to be any. So far there hasn’t,” Trump said.
“But now we have a man that just refuses to lower the Fed rate, just refuses to do … I don’t even think he’s that political. I think he hates me, but that’s OK.”
Recent economic data show that consumer prices rose 0.1 percent in May, lower than expected. Wholesale inflation was also subdued, with producer prices rising at a less-than-expected pace of 0.1 percent. Trade data also highlighted that import prices remained flat, while export prices declined by 0.9 percent.
Later this month, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, is expected to show a 0.1 percent increase.
Because tariffs can operate with a lag, Fed officials say they can afford to be patient in determining whether the administration’s sweeping levies will revive price pressures across the economy.
“So, I am in no hurry to adjust our policy stance.”
“Price increases tied to changes in trade policy may make it difficult to achieve further progress in the near term,” Cook said. “The recent post-pandemic experience with high inflation could make firms more willing to raise prices and consumers more likely to expect high inflation to persist.”
This, he says, could threaten the central bank’s twin mandate of price stability and maximum employment simultaneously.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” Powell said at an event hosted by the Economic Club of Chicago. “If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”
The futures market is also factoring this position into its forecasts.
