Fed holds rates steady, stays on track for 2 cuts in 2025
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Diverging Reports Breakdown
Fed holds rates steady, stays on track for 2 cuts in 2025
The Federal Reserve held interest rates steady Wednesday for the fourth meeting in a row. The central bank voted unanimously to maintain its benchmark interest rate in the range of 4.25%-4.5%. The Fed has now held rates at that level for six months since last cutting in December. Fed officials still see two rate cuts this year, the same amount projected in March, amid uncertainty of how the Trump administration’s policies, from tariffs to immigration to tax policy, will impact the economy. The unemployment rate is seen edging up to 4.5% from 4.4% previously.
The central bank voted unanimously to maintain its benchmark interest rate in the range of 4.25%-4.5%. The Fed has now held rates at that level for six months since last cutting in December.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Fed officials still see two rate cuts this year, the same amount projected in March, amid uncertainty of how the Trump administration’s policies, from tariffs to immigration to tax policy, will impact the economy.
What the central bank did change, however, was its outlook on inflation and economic growth amid those uncertainties. Fed officials now see inflation staying higher this year than previously estimated and economic growth going lower than prior predictions.
They estimate that the core Personal Consumption Expenditures (PCE) measure of inflation will be 3.1%, compared with 2.8% previously. Though they see that measure dropping back to 2.4% in 2026.
And the US economy is now projected to grow at an annualized pace of 1.4% instead of 1.7%. The unemployment rate is seen edging up to 4.5% from 4.4% previously.
“Uncertainty about the economic outlook has diminished, but remains elevated,” officials said in their policy statement, softening their language. Fed officials also removed language that previously said “the risks of higher unemployment and higher inflation have risen.”
Fed Chair Jerome Powell told reporters at a press conference that recent inflation reports have been favorable but that goods prices have been moving up following the introduction of new tariffs and there could be more of that this summer.
“We’re beginning to see some effects, and we do expect to see more of them over the coming months.”
Thus, the right thing to do for now, he added, is “hold where we are” on rates.
“What we are waiting for to reduce rates is to understand what will happen with the tariff inflation. There is a lot of uncertainty about that,” but “ultimately the cost of the tariffs has to be paid.”
Federal Reserve Chair Jerome Powell at the Federal Reserve in Washington, D.C., on June 2. (AP Photo/Mark Schiefelbein) · ASSOCIATED PRESS
Even though the Fed’s projections for cuts in 2025 stayed at two, there were a variety of estimates among policymakers — speaking to a growing divide within the central bank about the direction of monetary policy.
Eight officials estimated two rate cuts this year, compared with nine who made that prediction in the March round of projections, while seven saw no cuts this year compared with the four officials who made that call previously.
Fed holds rates steady, stays on track for 2 cuts in 2025
The Federal Reserve held interest rates steady Wednesday for the fourth meeting in a row. The central bank voted unanimously to maintain its benchmark interest rate in the range of 4.25%-4.5%. The Fed has now held rates at that level for six months since last cutting in December. Fed officials still see two rate cuts this year, the same amount projected in March, amid uncertainty of how the Trump administration’s policies, from tariffs to immigration to tax policy, will impact the economy. The unemployment rate is seen edging up to 4.5% from 4.4% previously.
The central bank voted unanimously to maintain its benchmark interest rate in the range of 4.25%-4.5%. The Fed has now held rates at that level for six months since last cutting in December.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Fed officials still see two rate cuts this year, the same amount projected in March, amid uncertainty of how the Trump administration’s policies, from tariffs to immigration to tax policy, will impact the economy.
What the central bank did change, however, was its outlook on inflation and economic growth amid those uncertainties. Fed officials now see inflation staying higher this year than previously estimated and economic growth going lower than prior predictions.
They estimate that the core Personal Consumption Expenditures (PCE) measure of inflation will be 3.1%, compared with 2.8% previously. Though they see that measure dropping back to 2.4% in 2026.
And the US economy is now projected to grow at an annualized pace of 1.4% instead of 1.7%. The unemployment rate is seen edging up to 4.5% from 4.4% previously.
“Uncertainty about the economic outlook has diminished, but remains elevated,” officials said in their policy statement, softening their language. Fed officials also removed language that previously said “the risks of higher unemployment and higher inflation have risen.”
Fed Chair Jerome Powell told reporters at a press conference that recent inflation reports have been favorable but that goods prices have been moving up following the introduction of new tariffs and there could be more of that this summer.
“We’re beginning to see some effects, and we do expect to see more of them over the coming months.”
Thus, the right thing to do for now, he added, is “hold where we are” on rates.
“What we are waiting for to reduce rates is to understand what will happen with the tariff inflation. There is a lot of uncertainty about that,” but “ultimately the cost of the tariffs has to be paid.”
Federal Reserve Chair Jerome Powell at the Federal Reserve in Washington, D.C., on June 2. (AP Photo/Mark Schiefelbein) · ASSOCIATED PRESS
Even though the Fed’s projections for cuts in 2025 stayed at two, there were a variety of estimates among policymakers — speaking to a growing divide within the central bank about the direction of monetary policy.
Eight officials estimated two rate cuts this year, compared with nine who made that prediction in the March round of projections, while seven saw no cuts this year compared with the four officials who made that call previously.