Fed Holds Rates Steady, Eyes Two Cuts Later in 2025

The Federal Reserve kept its benchmark interest rate unchanged at 4.25% to 4.5% in June, marking the sixth straight meeting without a move. However, policymakers still project two rate cuts by the end of 2025—just not yet.

In its statement, the Fed noted that inflation remains elevated and economic growth is slowing, with GDP expected to rise only 1.4% this year and inflation hovering near 3%. The Fed’s “dot plot” still reflects a path to easing, but one fewer cut is now forecast for both 2026 and 2027, hinting at a more gradual path ahead.

Chair Jerome Powell emphasized patience, saying the Fed is “well positioned to wait” for more clarity before making any changes. The decision was unanimous, although a growing number of officials—seven out of nineteen—now believe no cuts should happen in 2025.

Trump's Tariffs Complicate the Outlook
President Trump’s renewed trade war has complicated the Fed’s job. While his 90-day tariff pause has eased short-term concerns, the threat of higher consumer prices still looms. Powell acknowledged that tariff-related inflation hasn't yet shown up in the data, possibly due to stockpiling and softened demand, but warned that “someone has to pay for the tariffs”, and inflation pressures could emerge soon.

At the same time, Trump has intensified criticism of the Fed, calling Powell “stupid” and demanding an immediate 2 percentage point rate cut—a move the central bank is unlikely to make.

Jobs and Debt in the Spotlight
Labor market data continues to show signs of gradual cooling, with layoffs rising and long-term unemployment ticking up. Consumer spending is also slipping, with retail sales falling nearly 1% in May and housing starts at a five-year low.

Meanwhile, Trump’s fiscal policies are adding to the pressure. Interest on the $36 trillion national debt is projected to hit $1.2 trillion this year, becoming the third-largest U.S. budget item after Social Security and Medicare.

Bottom line
​The Fed is holding steady for now, aiming to balance tariff-driven inflation risks against weakening growth. While two cuts remain on the table for later this year, Powell and company are clearly in no rush—and they’re making it clear that politics won’t dictate monetary policy. For markets, it’s a waiting game.