The Federal Reserve left its benchmark interest rate unchanged on Wednesday, maintaining the current range of 4.25%-4.5% where it has remained since December. The move was widely expected by markets, but the central bank’s updated outlook underscored the challenges facing the U.S. economy: higher-than-anticipated inflation and slowing growth.
Despite these headwinds, Fed officials still anticipate two rate cuts by the end of 2025, according to the updated “dot plot” released alongside the rate decision.
Inflation Stays Elevated, Growth Forecasts Lowered
Projections from Federal Open Market Committee (FOMC) members point to ongoing stagflation pressures. GDP growth for 2025 is now forecast at just 1.4%, down 0.3 percentage points from March estimates. Meanwhile, the core personal consumption expenditures (PCE) inflation rate is projected to hit 3.1%, also 0.3 percentage points higher than previously forecast.
The unemployment rate is expected to inch up to 4.5%. These revised figures reflect persistent inflation concerns, despite a softening labor market and slowing consumer demand.
Fed Balancing Act: Inflation vs. Growth Risks
Fed Chair Jerome Powell acknowledged the difficult balancing act in a post-meeting press conference: “We are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policies.”
Markets took note, with U.S. stocks trading flat after the announcement. Uncertainty remains elevated, particularly with risks from geopolitical tensions in the Middle East and the lingering impact of tariffs.
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Political Pressure Builds for Faster Rate Cuts
Meanwhile, President Donald Trump renewed calls for deeper rate cuts, arguing that rates should be 2 percentage points lower. Trump’s concerns stem largely from the rising cost of servicing the $36 trillion U.S. national debt, with interest payments projected to exceed $1.2 trillion this year.
Still, the Fed remains cautious. Chris Zaccarelli, CIO at Northlight Asset Management, summed it up: “Effectively, they are sitting on their hands, waiting to see if tariffs increase inflation or the jobs market starts to falter.”
Two Cuts Likely, But Caution Prevails
For now, the Fed is holding steady, but officials continue to signal a bias toward rate cuts later this year—provided inflation cools further and the job market weakens. With economic uncertainty lingering, markets will remain closely attuned to Fed signals in the months ahead.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses
