Fed Officials Hold Rates Again, Still See Two Cuts by Year End

Federal Reserve officials continued to pencil in two interest-rate cuts in 2025, though new projections showed a growing divide among policymakers over the trajectory for borrowing costs as tariffs make their way through the US economy.

The Federal Open Market Committee voted unanimously on Wednesday to hold the benchmark federal funds rate in a range of 4.25%-4.5%, as they have since the beginning of the year. They also released new economic forecasts — their first since President Donald Trump unveiled a sweeping set of tariffs in April — showing they expect weaker growth, higher inflation and higher unemployment this year.

Speaking to reporters following the decision, Chair Jerome Powell repeated his view that the central bank was “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

Interest-rate projections released alongside the decision show a split: Seven officials now foresee no rate cuts this year, compared with four in March, and two others pointed to one cut. At the same time, 10 officials expect it will be appropriate to lower rates at least twice before the end of 2025.

In the run-up to this month’s meeting, many officials signaled their preference to hold rates steady for some time as they wait for clarity on how Trump’s economic policies will affect inflation and the broader economy.

In their post-meeting statement, policymakers dropped a line from the previous meeting that said risks to both unemployment and inflation had risen. They also said uncertainty about the economic outlook had diminished but remained elevated.

Fed officials and economists broadly expect the administration’s expanded use of tariffs to weigh on economic activity and put upward pressure on prices. The rate outlook from officials was in line with investors’ expectations for cuts this year prior to the announcement.

Asked about the division in officials’ rate projections, Powell downplayed it. Given the high level of uncertainty in the economy, he said, “No one holds these rate paths with a lot of conviction.”

US Treasuries ended the day trading close to unchanged with yields above their session lows, and traders continued to anticipate two rate cuts this year, with the first likely in September.

New Forecasts

In their updated economic forecasts, officials raised their median estimate for inflation at the end of 2025 to 3% from 2.7%. They marked down their forecast for economic growth in 2025 to 1.4% from 1.7%.

They forecast an unemployment rate of 4.5% by the end of the year, up slightly from their previous estimate.

The projections reflected the thorny situation facing Fed policymakers.

Growing inflationary pressures typically suggest the Fed policy should restrain the economy with elevated rates, while weakening growth calls for stimulus through lower rates. Trump this year has repeatedly pushed for the Fed to cut rates, arguing the central bank under Powell has often been late to adjust policy.

No Sign Yet

Neither employment nor inflation data have yet shown a substantial impact from tariffs. A measure of underlying consumer inflation rose in May by less than forecast, spurring Trump to renew his call for lower rates.

Powell said the committee continued to expect tariffs to work their way into final prices, but that it would take time.

“Ultimately the cost of the tariff has to be paid and some of it will fall on the end consumer,” he said. “We know that because that’s what businesses say, that’s what the data say from the past.”

“We know that’s coming and we just want to see a little bit of that before we make judgments prematurely,” he added.

Responding to a question, Powell said the Fed’s recent move to reduce staff wasn’t at odds with his earlier testimony to Congress that the central bank was not overstaffed.

“We’re going to demonstrate that we are good stewards of public resources,” he said.