FX.co ★ Fed Keeps Rates Steady, Still Sees Two Rate Cuts by Year End

The Federal Reserve has decided to keep the federal funds rate steady at 4.25%–4.50% for the fourth straight meeting as of June 2025, aligning with market expectations. This decision reflects a prudent approach by policymakers as they assess the full economic implications of President Trump's policies, especially concerning tariffs, immigration, and taxation. While officials acknowledge a reduction in uncertainty regarding the economic outlook, it remains at elevated levels. Despite these conditions, the Fed is still forecasting two interest rate reductions later this year, although it anticipates only a single 0.25% cut in both 2026 and 2027. In its revised economic projections, the Fed has lowered its GDP growth estimate for 2025 to 1.4%, down from the previously projected 1.7% in March. The 2026 growth forecast is now set at 1.6%, reduced from 1.8%, while the 2027 projection remains unchanged at 1.8%. The unemployment rate is anticipated to be 4.5% in both 2025 and 2026, compared to earlier predictions of 4.4% and 4.3%, respectively. On the inflation front, the Fed expects the Personal Consumption Expenditures (PCE) rate to be 3.0% in 2025, up from 2.7%, and to decrease to 2.4% in 2026, compared to an earlier estimate of 2.2%, before settling at 2.1% in 2027, slightly above the previous forecast of 2.0%.