Fed holds rates steady, eyes Trump tariff risks and inflation
WASHINGTON – The Federal Reserve held interest rates steady again Wednesday and kept its forecast for two cuts this year as officials struggled to balance the dual hazards of President Donald Trump’s sweeping tariffs - higher inflation and a weaker economy.
The decision leaves the Fed’s benchmark short-term rate at a range of 4.25% to 4.5% for a fourth straight meeting.
The central bank also raised its 2025 inflation forecast and revised down its economic outlook amid the ever-shifting import fees, envisioning at least a step toward a worst-of-all worlds scenario known as stagflation. Since the Fed’s last projections in March, Trump has announced more wide-ranging duties, dimming officials’ views of the economy’s prospects this year.
But he then paused many of the levies to allow for negotiations with foreign countries and unveiled a tentative deal with China, brightening the outlook somewhat compared to the last Fed meeting in early May.
In a statement after a two-day meeting, the Fed said “uncertainty about the economic outlook has diminished but remains elevated.” It repeated that both the economy and job market are “solid.” In May, officials said both uncertainty and the risks of higher unemployment and higher inflation had increased.
Officials project they’ll lower the federal funds rate by a half percentage point this year to a range of 3.75% to 4% - tantamount to two quarter point cuts, according to their median estimate. But they were closely split, with 10 looking for at least two decreases and nine predicting none or one. And they’re projecting just one rate cut in 2026, down from two previously.
The Fed trims rates to lower borrowing costs and bolster a slumping economy and raises them or keeps them high longer to wrestle down inflation. But Trump’s duties are expected to both reignite inflation and hobble growth as cost-burdened households reduce spending, leaving officials torn between their two mandates. They’re waiting to for tariffs to more tangibly affect prices so they can assess which poses a bigger threat before lowering rates again.
Here's a recap of updates from June 18:
Stocks close mostly lower
U.S. stocks closed mostly lower as traders parsed the decision by the Federal Reserve to leave interest rates on hold.
The S&P 500 shed 1.87 points to close at 5,980.85. The Dow Jones 30 Industrials fell 44.14 points, 0.1%, to 42,171.66. The Nasdaq Composite Index, which contains more tech exposure, was up 25.18 points or 0.1% to touch 19,546.27 at the closing bell.
– Andrea Riquier
What’s next for the housing market?
The challenges facing Fed officials also extend to the housing market, Zillow Senior Economist Orphe Divounguy noted in a release emailed after the Fed’s announcement.
“The Fed is balancing the risk of rising inflation and that of a weakening labor market,” Divounguy said. “Uncertainty over the impact of fiscal policy, and tariffs could keep Treasury yields — and mortgage rates — somewhat elevated. Meanwhile, conflict in the Middle East and a weaker domestic economy could lead to a flight to safety that pulls yields lower."
Divounguy continued: "Although mortgage rates had been easing ahead of the Fed decision, rates aren’t likely to move lower in the near term. But economic growth fears aside, buyers today have advantages: plenty of options have given them more bargaining power than in any spring in at least seven years. Spring shopping season may be more of a summertime affair this year - so long as prices and rates can move lower.”
– Andrea Riquier
Increased purchasing power, even in a high-rate environment
The Fed’s decision to maintain the status quo means interest rates are likely to remain elevated for longer, according to Timothy Chubb, Executive Vice President and Chief Investment Officer at Girard.
“This is a challenging environment for anyone carrying high-interest debt, applying for a mortgage, or managing a business reliant on borrowing,” Chubb said in a statement to Paste BN. “These high rates for longer disproportionately affect lower-income households and highly leveraged consumers who are more exposed to financial stress.”
He added, however, because wages are exceeding the rate of inflation, paychecks are going further.
“American workers are seeing gains in purchasing power, even in a high-interest rate environment,” Chubb said.
– Rachel Barber
Crisis in the Middle East could hike energy prices
Powell said conflict in the Middle East could lead to higher energy prices, although any impact on inflation would likely be short-lived.
“When there's turmoil in the Middle East, you may see a spike in energy prices, but it tends to come down. Those things don't generally tend to have lasting effects on inflation,” he said.
– Bailey Schulz
Will AI create or replace jobs?
Powell said it is “really hard to know” how artificial intelligence will affect jobs and unemployment in the future.
“The question really is: Will AI be more augmenting labor or replacing labor?” Powell said.
He acknowledged there are those who worry it’ll replace many blue- and white-collar jobs, but also those who believe it will create work opportunities. He said while “we’re in the very early stages,” AI has transformational potential.
“This is going to be a very important question for some time,’ Powell said.
– Rachel Barber
Stocks turn lower
U.S. stocks gave up early gains to trade essentially flat as Fed Chair Jerome Powell’s press conference continued. The S&P 500 was near 5,982, and the Dow ticked down 16 points to 41,199. The Nasdaq was up 19 points at 19,540. The 10-year U.S. Treasury was virtually unchanged at 4.389%.
– Andrea Riquier
Powell says ‘best thing’ for housing market is price stability
There’s been an argument for faster rate cuts, with some pointing to weaker housing data. The number of total housing construction starts in May fell to its lowest level since 2020 amid elevated interest rates, according to Census Bureau data.
But Powell said the “best thing” the Fed can do for the housing market is to restore price stability in a sustainable way and create a strong labor market.
– Bailey Schulz
Powell says higher prices expected this summer
The effects of Trump’s tariffs on inflation have so far been more subdued than anticipated. But Powell warned that doesn’t mean inflation won’t hit U.S. households soon.
"We expect a meaningful amount of inflation to arrive in coming months and we have to take that into account," he said. He added, "As long as the economy is solid....we feel like the right thing to do is be where we are and just learn more."
Goods inflation has been moving up “a bit,” he said, and the Fed expects to see more of that this summer after the effects of tariffs have more time to work through the distribution chain.
Powell said “many companies” plan to pass on tariff-related price increases to consumers, and categories like personal computers and audio-visual equipment are likely to see higher prices.
"The cost of the tariff has to be paid, and some of it will fall on the end consumer," he said. "That's what businesses say...So we know that's coming."
Powell said it’s up to the Fed to make sure a one-time increase in inflation tied to tariffs doesn’t turn into a long-term inflation problem.
“That will depend on the size of the effects, how long it takes for them to come in, and ultimately on keeping inflation expectations anchored,” he said.
Powell added that overall, uncertainty about the economic outlook “has diminished but remains elevated.”
– Bailey Schulz, Paul Davidson
Powell ‘not thinking’ about reappointment
After Donald Trump called him "stupid” earlier in the day, Fed Chair Jerome Powell responded to the president's comments and pressure to lower rates.
"From my standpoint, it’s not complicated. What everyone on the FOMC wants is a good, solid American economy with strong labor market and price stability," Powell said. "The economy has been resilient, and part of that is our stance. Again, we think we’re in a good place on that to respond to significant economic developments. That’s what matters."
He added he's not worrying about whether he will be reappointed by the president or thinking about if he will remain on the Federal Open Market Committee when his term expires in May 2026.
“I’m not thinking about that. I’m thinking about this,” Powell said, pivoting back to the general discussion.
– Rachel Barber
Powell says tariffs will drive up prices
Fed Chair Jerome Powell said in a press conference after the announcement that tariffs are likely to drive up prices.
“The effects could be short-lived, reflecting a one-time shift in the price level,” Powell said. “It’s also possible that the inflationary effects could instead be more persistent.”
He said it will depend on the size of the tariffs, their duration, and how long it takes for them to work their way through the distribution chain and affect consumer prices.
“We’re beginning to see some effects, and we do expect to see more of them,” Powell said.
– Rachel Barber
What the decision means for everyday Americans
Bankrate Chief Financial Analyst Greg McBride said people should not expect interest rates to drop after the Federal Reserve’s decision to maintain its target range for the federal funds rate.
“This is music to the ears of savers, like retirees, that are earning good income on their hard-earned savings. But it underscores the urgency for borrowers to aggressively pay down high-cost credit card debt and offers little hope of a significant drop in interest rates any time soon," McBride said in a statement to Paste BN.
– Rachel Barber
Would Fannie and Freddie ‘help more Americans’ with Fed cuts?
One White House appointee took to social media to echo President Trump’s calls for rate cuts by the Fed.
Bill Pulte, director of FHFA, the regulator of Fannie Mae and Freddie Mac, posted a tweet on X, formerly Twitter, shortly before the Fed decision was announced.
"Fannie Mae and Freddie Mac can help so many more Americans if Chair Powell will just do his job and lower rates," Pulte's post said.
As Paste BN has previously reported, mortgage rates track the trajectory of the 10-year U.S. Treasury note, not the banking interest rates the Fed controls. The benchmark 10-year was down about 2 basis points after the Fed decision at about 4.373%.
– Andrea Riquier
What is the expected inflation rate in 2025?
Fed officials predict their preferred measure of annual inflation will rise from 2.1% in April to 3% by year-end, above the 2.7% they projected in March, according to their median estimate. That’s down from a 40-year high 7% in 2022 but well above the Fed’s 2% goal.
A core inflation reading that excludes volatile food and energy items and that the Fed follows more closely is expected to increase from 2.5% to 3.1%, above the previous 2.8% estimate.
Inflation has been unexpectedly mild in recent months as pandemic-related wage and rent increases have slowed. And tariffs haven’t yet had a significant impact on consumer prices.
But forecasters expect the levies to have a bigger effect in coming months as retailers and manufacturers pass along the charges to shoppers.
The Israel-Iran conflict also could push up inflation by disrupting oil supplies and driving up gasoline prices.
– Paul Davidson
How will the economy do in 2025?
The Fed said it expects the economy to grow 1.4% this year, below its previous 1.7% estimate.
The economy has been mixed lately. Retail sales fell nearly 1% in May but a key measure that excludes volatile categories such as autos and gasoline rose a better-than-expected 0.4%.
Uncertainty over tariffs led both consumers and businesses to buy foreign-made cars and other goods earlier this year before the taxes took effect. Since imports subtract from gross domestic product, that caused the economy to contract 0.2% in the first quarter. Barclays expects modest growth of 1.3% in the current quarter.
– Paul Davidson
What is the current employment outlook?
The 4.2% unemployment rate is projected to rise to 4.5% by the end of the year, above the March forecast of 4.4%, the Fed’s median estimate shows.
While average monthly job growth has slowed to 135,000 the past three months from 168,000 in 2024, that’s a decent showing and the 4.2% jobless rate is still historically low. Companies haven’t laid off many workers but hiring has fallen dramatically amid trade-related uncertainty.
– Paul Davidson
What are predictions for future rate cuts?
Before the meeting, Fed funds futures markets were betting on two rate cuts this year, in September and December.
Fed Chair Jerome Powell has said the Fed would prioritize whichever trade-related problem – high inflation or a soft economy and labor market – is more formidable. But he also has said that all things equal, its main job is keeping a tariff-induced inflation spike from affecting inflation expectations and causing a longer-term price impact.
That suggests officials may lean toward fewer rate decreases.
Barclays figured the Fed would scale back its forecast to just one rate cut in 2025, noting its estimates of inflation were likely to be revised up more sharply than the unemployment rate.
– Paul Davidson
How does the Fed interest rate affect loans?
After the Fed’s decision to stand pat Wednesday, consumers will keep benefitting from lower borrowing costs for credit cards, some mortgages, and auto and other loans compared to a year ago. That’s because the Fed slashed rates by a total percentage point during the last few months of 2024 as inflation eased. But there won’t be a further drop in rates in the short term.
– Paul Davidson
What is the current tariff level?
Trump has paused the high double-digit “reciprocal” tariffs he slapped on dozens of countries pending potential trade agreements. And a framework of a deal with China would lower duties on Chinese imports to 55% from 145%.
But Trump recently doubled duties on steel and aluminum imports to 50%. And 25% tariffs remain in effect on all imported cars and many goods from Canada and Mexico.
All told, average U.S. tariffs are about 14%, up from about 3% early this year but down from 24% in early May, according to Barclays.
– Paul Davidson
How are tariffs influencing the Fed’s decisions?
The Fed has refrained from cutting rates so far this year as Trump’s tariffs spur economic uncertainty and increase the risk of inflation.
Tariffs – which are expected to both raise prices and hamper economic growth – pose an unusual dilemma for the Fed, which aims to keep inflation low and employment high.
Without the uncertainty of tariffs, the Fed would likely be in a position to make cuts given the relatively solid labor market and continued moderation in inflation, according to Daniel Hornung, a senior fellow at MIT and former deputy director of the National Economic Council.
"Instead, the Fed finds itself waiting to see whether tariffs pose a greater risk to the employment or inflation side of its mandate, and is unlikely to cut anywhere close to the magnitude that some are hoping for,” Hornung wrote in a June 17 statement. “It is clear that trade policy uncertainty has put the Fed in a major bind.”
– Bailey Schulz
What are the risks of cutting rates too soon?
Lowering rates could be a short-term boost for the economy, making it easier for businesses and consumers to borrow and bolstering U.S. manufacturing by making exports cheaper through a weakened dollar.
But there are also concerns that cutting rates too soon could stoke inflation and hobble the economy more significantly in the long term.
– Bailey Schulz, Paul Davidson
How many Fed rate cuts will there be in 2025?
The Fed in March projected two rate cuts in 2025, down from four envisioned in September.
Now, markets will be watching closely to see whether the central bank signals one or two rate cuts this year, according to a statement from Daniel Hornung, a senior fellow at MIT and former deputy director of the National Economic Council.
– Bailey Schulz
Stocks higher at midday
U.S. stocks gained ground at midday as investors await the Fed’s announcement. The S&P 500 was up 0.5%, about 27 points, near 6,010, and the Dow 30 Industrials added 176 points, 0.4%, to trade near 42,391. The Nasdaq, which contains more tech exposure, jumped 123 points to about 19,644.
While there’s relatively little chance the central bank will choose to cut rates at this meeting, traders may be cheered by economic data that’s turning softer than many had expected.
The number of Americans claiming unemployment benefits has been rising, and Wednesday, the Census Department said homebuilders broke ground on fewer homes than expected in May.
– Andrea Riquier
Why is the European Central Bank cutting rates?
Trump has cited the European Central Bank’s aggressive rate-cutting campaign over the past year as he called on the Fed to lower rates.
"Remember, Europe had 10 cuts. We had none. We’re paying more interest than a lot of European nations that can’t carry our suitcase,” Trump said outside the White House on June 18.
The ECB actually cut its benchmark rate eight times over the past year amid easing eurozone inflation. Its key rate currently sits at 2%, compared with the Fed’s 4.25% to 4.5%.
But economists say the ECB has more incentive to trim rates because its inflation is lower (1.9%, just below the ECB’s goal) and its economy is shakier. The U.S., in comparison, had 2.4% inflation as of May – still above the Fed’s 2% target – and a stronger economy that requires less support through rate cuts.
Oxford Economics expects the eurozone to grow 0.6% this year, nearly half the 1% expansion it forecasts for the U.S.
– Bailey Schulz, Paul Davidson
Trump calls Powell a 'stupid person'
Trump on June 18 called Powell a "stupid person" who has "done a poor job," adding that he's called the Fed chair "every name in the book" to try to get him to cut rates.
"I’m nasty. I’m nice. Nothing works," Trump said, speaking outside the White House. He added he invited Powell to dinner.
The comments came just weeks after Trump asked Powell to meet with him at the White House. Powell has previously said he has never asked for a meeting with any president, and never will; it has always been the president who requests a meeting.
Trump continued to press his case for lower rates during the meeting, while Powell said monetary policy would be based on incoming economic information and "careful, objective, and non-political analysis," according to the White House press secretary and a Fed statement.
– Bailey Schulz
What is the current Fed rate?
The Fed last announced a quarter percentage point drop in December, bringing its benchmark federal funds rate to 4.25% to 4.5%.
– Bailey Schulz
When is the next Fed meeting?
Upcoming Fed meetings include:
- July 29-30
- Sept. 16-17
- Oct. 28-29
- Dec. 9-10
– Bailey Schulz
Why did the Fed stop its interest rate cuts?
The Fed began to hike interest rates in 2022 amid rapid inflation, lifting rates from nearly zero to a two-decade high of 5.25% to 5.5% in July 2023.
The central bank began to trim rates as inflation softened, bringing its benchmark short-term rate to a range of 4.25% to 4.5% in December. That month, it signaled rate cuts would slow amid stubborn inflation and strong economic growth.
– Bailey Schulz
How are financial markets doing before the Fed meeting?
Stock futures were barely changed Wednesday morning before the opening bell as traders await a crucial Fed policy meeting. While the central bank is widely expected to hold interest rates steady, investors want to hear how officials characterize the economic outlook.
Just before 9 a.m. Eastern, the Dow Jones Industrial Average was up 2 points to 42,230, the broad S&P 500 Index was about 4 points higher, near 5,989, and the Nasdaq Composite Index gained 31 points, or 0.1%, to trade near 21,762. The 10-year U.S. Treasury, which is most heavily influenced by Fed policies, was off about 3 basis points, near 4.365%.
– Andrea Riquier
What time is the Fed meeting today?
The Federal Reserve holds eight regularly scheduled meetings each year to determine monetary policy.
This month's two-day meeting kicked off on June 17. The Fed will announce its interest rate decision on June 18 at 2 p.m. ET, followed by a news conference with Powell at 2:30 p.m. ET.
– Bailey Schulz
Can Trump fire Powell?
Trump has repeatedly lashed out at Powell as he pressures the Fed chair to cut interest rates. In April, Trump said the Fed chair would be “out of there real fast” if we wanted him gone.
But the president has also said he has no plans to fire Powell.
“I have no intention of firing him,” Trump said on April 22. “I would like to see him being a little more active in terms of his idea to lower interest rates. This is a perfect time to lower interest rates.”
Legally, Trump would have trouble firing the Fed chair. In May, a Supreme Court ruling eased concerns over Trump’s ability to fire Powell, noting that the Fed is "a uniquely structured, quasi-private entity" and unlike other independent agencies with members subject to terminations decided by the president.
Powell was appointed chair during the first Trump administration and was reappointed in 2022 under Biden. His term is set to end in May 2026.
– Bailey Schulz