The Federal Reserve Holds Rates Steady, Notes Easing Uncertainty Yet Elevated Risks, Maintains Projection of Two Cuts in 2024, Signals Stagflation Risks May Be Rising

On June 18 (Eastern Time), the Federal Open Market Committee (FOMC) concluded its monetary policy meeting by keeping the federal funds rate target range steady at 4.25% to 4.5%—the fourth consecutive meeting to do so. This decision fell short of U.S. President Trump’s call a day earlier for a 2.5 percentage point rate cut and came amid heightened concerns about stagflation, as the Federal Reserve revised inflation expectations upward and trimmed GDP growth projections.

Since President Trump assumed office in January, the Fed has held rates constant following three cuts totaling 100 basis points between September and December of the prior year. The current move had already been heavily priced in by markets, with CME data as of Tuesday showing a 99.9% probability of no change this week and an 85% probability of no action in July. Futures reflected just over a 63% chance of a 25-basis-point reduction by September. Recent CPI and PPI data for May indicated moderating inflation, reinforcing the market’s anticipation of two cuts this year.

Compared with its May communication, the latest statement maintained much of the same language, although it acknowledged that economic uncertainty “has eased but remains elevated.” The updated dot plot showed a more cautious stance, as a greater number of officials now expect no rate reductions this year.

Steve Englander, Global Head of G10 FX Research at Standard Chartered, commented that the Fed appeared to be broadening its policy options without locking itself into any specific commitment. Fed-focused journalist Nick Timiraos noted that the central bank has not ruled out cuts in the latter half of 2024, with decisions likely to depend on whether firms absorb higher tariff-related costs or shift them onto consumers. Further adjustments may also hinge on signs of labor market softening or clearer evidence of subdued inflationary pressure stemming from tariffs.

Timiraos highlighted diverging views among the 19 policymakers contributing to the rate forecast. While ten anticipate at least two cuts this year—down from eleven in March—seven now foresee no cuts at all, an increase from prior estimates. The Fed’s June statement introduced three key changes relative to May. It revised the description of economic uncertainty to “has eased but remains elevated,” removed the reference to “increased risks of unemployment and inflation,” and simplified the characterization of the labor market from “stabilized at a low level” to “remains low.”

In terms of the broader economic picture, the Fed acknowledged recent indicators show stable expansion, despite net export volatility. The labor market remains resilient, while inflation continues to run above target.

The Fed confirmed it would maintain the drawdown of its balance sheet. As initiated in April, monthly caps on U.S. Treasury redemptions were reduced from $25 billion to $5 billion, with no changes to the $35 billion cap for agency debt and mortgage-backed securities. The approach has remained unchanged through the last two meetings.

As with the prior session, the current decision received unanimous support from all voting members of the FOMC. The revised dot plot kept the median policy rate for 2024 unchanged but revealed a shift in outlook: the number of officials expecting no rate cuts rose by three, now comprising roughly 37% of projections—just one less than those supporting two cuts. Those forecasting two cuts declined to eight (42%), and those expecting a single cut also decreased.

Specifically, ten policymakers now see at least two rate reductions this year, compared to eleven in March. Twelve foresee at least one cut, down from sixteen in the previous projection.
The June dot plot (highlighted in yellow) against March’s version (in gray) underscores this shift. The Fed also revised its economic projections, cutting GDP growth estimates and lifting its forecasts for unemployment and inflation.

The 2025 GDP forecast was lowered from 1.7% to 1.4%, with the 2026 projection reduced to 1.6% from 1.8%. Projections for 2027 and the long-run remain unchanged at 1.8%. The 2025 unemployment estimate rose from 4.4% to 4.5%, while 2026 and 2027 were both raised to 4.5% and 4.4%, respectively, up from 4.3%. The long-term forecast held steady at 4.2%.

PCE inflation is now projected to reach 3.0% in 2025 (up from 2.7%), 2.4% in 2026 (up from 2.2%), and 2.1% in 2027 (up from 2.0%). The long-term target remains 2.0%. Core PCE inflation for 2025 is now estimated at 3.1% (previously 2.8%), with 2026 and 2027 forecasts raised to 2.4% and 2.1%, respectively.

Journalist Catarina Saraiva remarked that these revised inflation expectations—especially the 3% PCE forecast for 2025—are notably above April's recorded 2.1% year-on-year increase. She noted that despite this, the Fed may still proceed with two rate reductions if it considers the elevated inflation temporary, with expectations it will ease to 2.4% in 2026 and 2.1% by 2027.