Fed Holds Rates Steady at 4.25%–4.5%, Signals Cuts Amid Tariff Concerns

On June 18, 2025, the Fed decided to maintain the federal funds rate unchanged from the previous year, between the range of 4.25% and 4.5%. The Summary of Economic Projections (SEP) indicated cuts over the years, lowering to 3.9% by Q4, 2025, 3.6% in 2026, and 3.4% by the end of 2027.

The primary focus of the monetary policy is the dual mandate: to maintain price stability and maximum employment. The inflation rate is at 2.4%, indicating price stability, the US tariffs are not impacting the inflation yet but are predicted to increase the prices, which in turn might affect inflation. The unemployment rate currently stands at 4.2%, indicating a healthy level, with employment at its maximum, high job creation, and better wages.

However, Q1 2025 experienced a decline in the GDP of 0.2%, approximately $30 trillion, mainly due to the tariff-related net exports. Consumption declined due to the imposition of tariffs and is expected to change further. Private Domestic Final Purchases (PDFP), which excludes net exports, inventory investment, and government spending, grew at a rate of 2.5%.

Overall, the US economy has given a positive outlook, cooling at a slower rate. The only concern ahead are the tariffs which may have an impact on inflation and GDP, but the Federal Reserve nevertheless has predicted two rate cuts by the end of the year.