U.S. FOMC Meeting (June 17-18, 2025)

Fed holds rates steady, but trims growth outlook amid ongoing uncertainty

• The Federal Reserve Open Market Committee (FOMC) maintained the federal funds rate in the 4.25% to 4.50% target range for the fourth consecutive meeting. The 'pause' on rate cuts comes after the FOMC lowered the funds rate by a total of 100 basis points (bps) over the final three meetings of 2024. 
  
• There were minimal changes to the statement, with one notable call out on the characterization of uncertainty on the economic outlook, which now reads as "diminished but remains elevated" (versus the prior wording of "having increased further"). Note that the last statement was released less than a month after "Liberation Day," when tariff policies were changing on an almost daily basis. Importantly, the Committee still judges economic activity to be running at a "solid pace," and that the unemployment rate "remains low". 
  
• Accompanying the statement, the FOMC also released a revised set of economic forecasts, known as the "Summary of Economic Projections" (SEP). The SEP show the range, central tendency and median of the individual forecasts submitted by each of the FOMC participants. Relative to the March update:
  
  • The median projection for real GDP growth as measured on a Q4/Q4 basis – was downgraded to 1.4% (previously 1.7%) in 2025 and 1.6% in 2026 (previously 1.8%), while the long-term outlook remained unchanged at 1.8%.
    
  • The median year-end unemployment forecast was nudged higher over each of the next three years, with 2025 and 2026 at 4.5% (previously 4.4% and 4.3%, respectively) and 2027 at 4.4% (previously 4.3%). 
    
  • Core PCE inflation – the Fed's preferred inflation gauge – was raised three-tenths to 3.1% for 2025, while 2026 (2.4% from 2.2%) and 2027 (2.1% from 2.0%) were also revised slightly higher. 
    
  • Lastly, the median projection for the federal funds rate was held at 3.9% for 2025, corresponding to a target range of 3.75% to 4.0%, or 50bps lower than the current setting. Both 2026 and 2027 were raised by 25bps to 3.6% and 3.4%, respectively. The long run "neutral" rate remained unchanged at 3.0%. 
    
• All FOMC members voted in favor of keeping the federal funds rate unchanged.

Key Implications

• No surprises from the Fed today. With the "hard" economic data still pointing to a relatively healthy economy, Fed officials remain in no rush to adjust its policy stance. But like our forecast, the median FOMC projection shows an expectation that the ongoing economic resilience will soon give way to weaker growth, which is likely to be accompanied by both higher unemployment and inflation. 
• Fed futures remain largely unchanged following the release of the statement and are still pricing in two quarter-point rate cuts by year-end, with the next to come in September. But, as Chair Powell is likely to emphasis in today's press conference (beginning at 2:30 PM ET), the Fed is by no means on a preset course. Risks to the inflation and economic outlook remain especially elevated given the ongoing shifts in trade and fiscal policy, as well as the recent escalation in geopolitical tensions in the Middle East. This leaves the timing of the next rate cut highly uncertain and conditional on either: further evidence of disinflation – unlikely over the near-term given tariff pressures and higher oil prices – or definitive signs that the labor market is deteriorating.     

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.