Federal Reserve to keep interest rates steady at 4.25%-4.50% amid economic uncertainties

From Morningstar: 2025-06-17 04:28:00

Federal Reserve officials are expected to keep interest rates steady at 4.25%-4.50% during their June policy-setting meeting. With inflation cooling and a stable labor market, the central bank can afford to wait. New projections post-meeting will offer insight into future interest rates and the economy in 2025, but they are not set in stone.

Amid evolving tariff policies and economic uncertainties, the Fed faces tough decisions balancing solid economic data with potential challenges like higher inflation, slower growth, and weaker job markets. Market participants have adjusted rate cut predictions for the year, with analysts closely watching future Fed moves in 2025.

Recent data shows cooling inflation and healthy job creation, but President Trump’s tariffs could impact the economy’s trajectory. Consumer and business sentiment has declined, leaving the Fed in a wait-and-see mode. Uncertainties about tariffs make inflation predictions tricky, prompting caution in rate decisions.

Fed officials are monitoring employment indicators for signs of stress in the labor market. They are ready to respond quickly to major job market disruptions by lowering rates if needed. With a focus on future meetings, market watchers are eager for signals from the dot plot to understand the Fed’s economic and interest rate forecasts.

Tariffs have dominated discussions, but the Fed also considers immigration, regulatory policies, and government spending impacts on the economy. With an eye on the neutral rate and long-term economic equilibrium, fewer rate cuts may be necessary if rates are neither too accommodative nor restrictive. The Fed’s decisions are data-driven and not based on future policy forecasts.

Financial markets anticipate the first Fed rate cut in September, with a 60% chance according to the CME FedWatch Tool. Bond futures traders predict at least two cuts by year-end, with rates unchanged since last December. Wall Street forecasts vary, with predictions ranging from one to three cuts by the end of 2025, reflecting uncertainties in the economic outlook.



Read more at Morningstar: US Fed Rate Decision: What to Expect on June 18