The Federal Reserve left interest rates unchanged on Wednesday, keeping the federal funds rate locked between 4.25% and 4.5%, where it’s been since December. This decision was expected, as no one on Wall Street anticipated any movement this time.
The central bank’s latest statement also confirmed it’s still looking at two possible rate cuts before the end of 2025, even though more of its own members now oppose any cuts at all.
The update came from the Federal Open Market Committee’s meeting in Washington, where members also released updated projections. The Fed’s internal “dot plot” showed a deeper split among officials. Seven out of the 19 policymakers said there should be zero rate cuts in 2025, which is up from just four in March.
Despite that disagreement, every member signed off on the policy statement. The new forecast also removed one rate cut from the 2026 and 2027 projections, leaving only four more expected cuts through 2027, totaling one percentage point.
Fed revises economic forecasts as stagflation concerns grow
The Federal Reserve’s latest projections show that it expects the economy to slow even further this year. The new estimate for GDP growth in 2024 is just 1.4%, which is a 0.3-point drop from March. At the same time, the Fed sees inflation climbing, revising its outlook for PCE inflation to 3% and core PCE to 3.1%. Both were bumped up 0.3 points.
The Fed also now sees unemployment rising. The jobless rate is expected to hit 4.5%, up from March’s forecast of 4.4% and higher than the current level. These numbers paint a picture of stagflation—the mix of low growth and persistent inflation—which complicates any decision to cut rates. In the committee’s words, the economy is still growing at a “solid pace,” with joblessness “low” and inflation “somewhat elevated.”
In a short sentence buried in the statement, the Fed acknowledged that uncertainty has come down, though it warned that the risk is “still elevated.” The committee added that it’s “attentive to the risks to both sides of its dual mandate.”
There was no detail on why the Fed suddenly thinks things are more stable, but one factor could be Donald Trump’s toned-down trade language. The White House has started a 90-day negotiation period over new tariffs, which may have calmed nerves.
But while trade talk softened, Trump’s attacks on the Fed did not. Speaking earlier the same day, President Trump tore into Chair Jerome Powell again. Trump said Powell was “stupid” for not cutting rates and added, “The fed funds rate should be at least two points lower.” Trump has made it clear he believes lower rates are needed fast, especially with the government now paying $1.2 trillion in annual interest on its $36 trillion national debt.
Trump slams Powell while Fed worries about tariffs and energy costs
Trump’s frustration with Powell has been ongoing, but now that he’s back in the White House, the stakes are higher. The president’s pressure on the Fed ties directly to how much the government is spending to service its debt. With Treasury yields staying elevated since the last cut in December, the budget is under pressure. The federal deficit is expected to reach $2 trillion this year, more than 6% of GDP.
Despite that, the Federal Reserve is staying cautious. Officials are still nervous about inflation risks tied to Trump’s tariffs, which were reinstated earlier this year. So far, consumer price indexes haven’t reflected major increases, and economists think that’s due to a combination of factors. Companies loaded up on inventory before Trump’s April 2 “liberation day” announcement. Meanwhile, consumer demand has weakened, which helped keep prices in check.
One thing the Fed didn’t mention at all? The ongoing Israel-Iran conflict, which has created new pressure on energy prices. Rising oil costs could easily push inflation higher again, making rate cuts riskier. But the committee didn’t include that geopolitical tension in its official remarks.
If you're reading this, you’re already ahead. Stay there with our newsletter.
