Fed Keeps Rates in Line, Lowers GDP Projections

Wednesday, June 18, 2025

Market indexes were mixed in Hump Day trading today, with the Dow and S&P 500 sinking into the red on reflections at the conclusion of the Fed meeting and Fed Chair Jerome Powell’s press conference directly following. The Fed did not cut rates, as expected they wouldn’t, and Powell said he saw +0.6% higher inflation expectations from the last time the Fed cut.

As a result, the Dow slid -44 points, -0.10%, while the S&P 500 only lost -1.8 points, -0.03% for the session. The Nasdaq gained 25 points, +0.13%, and the small-cap Russell 2000 led the indexes for the second-straight day. Bond yields remained well behaved: the 10-year is +4.39%, the 2-year is currently +3.94% and the 30-year yield remains +4.96%.
 

Fed Meeting Lowers Estimates, Keeps Rates the Same

Today’s anticipated result from the latest Federal Open Market Committee (FOMC) meeting of no movement on the 4.25-4.50% Fed funds rate for the fourth meeting in a row was a clean sweep — all 12 voting members chose to keep rates where they are. Economic activity and the labor market are still “solid,” according to the Fed.

It was a peculiarly short and straightforward statement, considering how much has changed since the last meeting six weeks ago, not the least of which is the war in the Middle East between Israel and Iran, which may have ramifications for oil prices, defense contracts, civil unrest, etc. The FOMC still sees two rate cuts possible for 2025, though it has reduced the projected number of rate cuts for 2026 and 2027 to four for each.

Powell helped articulate much of the findings of the committee over its two-day meeting, including a +1.4% GDP for 2025 and +1.6% for 2026 — both down from previous estimates — with 4.5% unemployment consensus by the end of this year. It also sees +3.0% PCE for 2025, which is higher than prior estimates. 

Much will pivot on what eventually happens with tariffs — how many and how big — will eventually come down the pike. Powell said he feels the Fed is well-positioned to wait and watch. “We’re adapting in real time,” he told a reporter questioning him. The position on inflation was “diminished but still elevated,” though “no one [on the committee] holds rate paths with a lot of conviction.”

Powell did mention that “without tariffs, confidence [in forecasting inflation] would be improved,” but that he “sees inflation elements on the horizon,” obviously referring to the pending tariffs and Middle Eastern developments. He said the FOMC needs to understand tariff results before it can begin cutting rates in good conscience.
 

What to Expect from the Stock Market This Week

Tomorrow being a bank holiday in observance of Juneteenth, we expect no economic reports whatsoever that day. Normally, the Weekly Jobless Claims would have come out Thursday morning, but were moved to today. On Friday, we’ll see the latest Philly Fed manufacturing report for June, and U.S. Leading Economic Indicators (LEI) for May.

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