The Federal Reserve decided to keep interest rates steady despite concerns about rising inflation and slowing economic growth in the future. The Federal Open Market Committee opted to maintain the key borrowing rate within the range of 4.25%-4.5%, where it has been since December. The committee also hinted at the possibility of two rate cuts later in 2025, reducing the expected future cuts to a total of four by 2027.

There was a wide range of opinions among Fed officials regarding the future of interest rates, with some projecting a fed funds rate around 3.4% in 2027. While seven out of 19 participants preferred no cuts this year, the policy statement was approved unanimously. Economic projections indicated stagflationary pressures, with GDP expected to grow at a 1.4% pace in 2025 and inflation reaching 3%.

GDP Forecast Adjustments

Revised forecasts from the previous update in March showed a decrease in GDP projections by 0.3 percentage points and an increase in the personal consumption expenditures price index by the same amount. Core PCE, which excludes food and energy prices, was projected at 3.1%, up by 0.3 percentage points. The unemployment outlook was also revised slightly higher to 4.5%.

The FOMC statement from the meeting highlighted the solid pace of economic growth, low unemployment, and somewhat elevated inflation. Fed Chairman Jerome Powell emphasized the need for more clarity before considering policy adjustments, indicating a wait-and-see approach.

Trump's Influence

President Donald Trump has been vocal about his desire for rate cuts, criticizing the Fed for not easing monetary policy. Despite easing trade tensions, Trump continues to push for lower rates. Fed officials remain cautious about potential inflation from tariffs and other economic uncertainties, such as the conflict between Israel and Iran.

The Fed's decision not to cut rates reflects concerns about a softening economy, with recent data showing signs of slowing consumer demand and a cooling housing market. Lower rates could help alleviate the high cost of financing the government's debt, which is on track to exceed $1.2 trillion this year.

Overall, the Fed's decision to maintain interest rates signals a cautious approach amid economic uncertainty and geopolitical risks.