US Federal Reserve holds rates steady, sees two cuts in 2025 amid slower growth and persistent inflation
WASHINGTON: The US Federal Reserve held its benchmark interest rate steady on Wednesday (Jun 18), while signalling that two rate cuts remain on the table for 2025, even as it scaled back projections for monetary easing in later years due to higher-than-expected inflation and slower growth.
Policymakers kept the federal funds rate in the 4.25% to 4.50% range, where it has stood since December. The Fed's updated economic outlook painted a more stagflationary scenario, with GDP growth projected at just 1.4% for the year and inflation forecast to hit 3%, well above the 2% target.
The Fed's 'dot plot' still points to two quarter-point rate cuts in 2025, unchanged from projections in March. However, policymakers now see only one cut in 2026 and one in 2027, suggesting a more gradual easing trajectory over the longer term.
'Uncertainty about the economic outlook has diminished but remains elevated,' the central bank said in its latest policy statement. This marked a shift from May's language, which highlighted the risks of rising inflation and unemployment during a more volatile period in the global trade debate.
MARKETS WATCHING SEPTEMBER MEETING
The Fed's guidance lines up with market expectations for a potential rate cut at its next key policy meeting in September. Still, the central bank has resisted mounting pressure from US President Donald Trump, who on Wednesday renewed his attacks on Fed Chair Jerome Powell, calling him 'stupid' and demanding a sharp rate cut.
The Fed has not committed to a fixed timeline for cutting rates, citing lingering uncertainty over the Trump administration's tariff policies, and the challenge of gauging how higher import taxes may affect consumers, supply chains, and producer costs.
While inflation is forecast to gradually decline, to 2.4% in 2026 and 2.1% in 2027, the pace is slower than earlier hoped. Meanwhile, unemployment is expected to climb to 4.5% by year-end, up from March's 4.4% forecast and above May's 4.2% rate.
Still, the Fed noted that 'the unemployment rate remains low, and labor market conditions remain solid,' suggesting no immediate alarm from policymakers.
NO MENTION OF IRAN-ISRAEL CONFLICT
The Fed made no reference to the ongoing conflict between Israel and Iran, which has stirred concerns over oil prices and broader global market risks. Chair Powell is expected to address geopolitical tensions and elaborate on the Fed's outlook during a press conference at 2:30pm EDT (1830 GMT).
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