The Fed decided to keep its benchmark interest rate unchanged after a two-day policy meeting, amid a weaker economic growth outlook and high inflation.
Specifically, the Federal Open Market Committee (FOMC) kept the benchmark interest rate unchanged in the range of 4.25-4.5%, which has remained stable since December last year.
The Fed also released a “dot plot” chart, a tool that shows each Fed official’s expectations for future interest rates. The data shows that there are still two expected rate cuts this year, but the number of adjustments in 2026 and 2027 has been cut, bringing the total number of remaining cuts to four, equivalent to 1 percentage point.
Fed officials were sharply divided, with seven of 19 saying no rate cuts were needed in 2024, up from four in March. Still, the policy statement was unanimous.
Fed Chairman Jerome Powell said inflation has cooled over the past three months, but that this is a reflection of the past. "The Fed and outside forecasters are all expecting significant inflation in the next few months. We have to take that into account," Mr. Powell warned.
The Fed still expects to cut rates by a total of 0.5 percentage points in 2025. However, they expect to cut rates by only 0.25 percentage points each year in 2026 and 2027.
The Fed’s new forecasts predict slower growth. GDP will grow just 1.4% in 2025, down from 1.7% in March. Full-year inflation will be 3%, significantly higher than the 2.4% forecast in May. Unemployment will rise to 4.5%.
The Fed did not mention the Israel-Iran tensions in its policy statement. However, Mr. Powell said the agency is monitoring the situation. He said that energy price spikes caused by conflicts are usually temporary and do not have a lasting impact on inflation.
"We now have a reasonable basis to wait and monitor further economic developments before adjusting policy," Mr. Powell said, emphasizing that they are ready to respond promptly to new information.
Fed interest rate developments (Photo: CNBC).
The Fed meeting comes amid a complex geopolitical backdrop. U.S. inflation has so far been affected by President Donald Trump’s tariffs. At the same time, President Trump and his administration have stepped up their pressure on the Fed to lower interest rates.
Israel-Iran tensions also pose a risk of destabilizing global energy markets, adding complexity to policymaking.
While the unemployment rate remains low at 4.2%, the May nonfarm payrolls report showed a weakening labor market. Recent inflation data also showed that tariffs have had a limited impact on prices, giving the Fed more reason to consider easing policy.
“We’re living in a disinflationary world,” Robert Kaplan, former president of the Dallas Fed, said in an interview with CNBC last week. “Without these tariffs, I think the Fed would be actively looking to cut rates.”
Markets now expect the Fed to cut rates in September, exactly one year since the FOMC made a surprise 0.5 percentage point cut amid concerns about the labor market.
In the current context, Mr. David Mericle, economist at Goldman Sachs, assessed that trade tensions have eased, inflation is low and economic data shows some signs of weakness.
Goldman Sachs predicts the Fed will maintain its forecast for two cuts, but the bank's economists see only one rate cut in the end.
“We believe a rate cut is still on the cards because, outside of tariffs, inflation news has actually been quite positive. However, the impact of tariffs over the summer could cause inflation to spike, making it harder for the FOMC to cut rates before December,” Mericle said in the report.
Source: https://dantri.com.vn/kinh-doanh/fed-giu-nguyen-lai-suat-phat-tin-hieu-moi-lam-rung-chuyen-thi-truong-20250619002033616.htm
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