“Fed Holds Interest Rates Steady for Fourth Meeting, Signals Two Cuts in 2025 as Balance Sheet Reduction Ends”

Key Points

• The Federal Reserve has kept its key interest rate unchanged at 4.25%-4.50%.

• It seems likely that the Fed still expects two rate cuts by the end of 2025, though some policymakers disagree.

• Economic projections show slower growth, higher inflation, and rising unemployment, adding complexity to the decision.

Decision Overview

On June 18, 2025, the Federal Reserve decided to maintain its key interest rate, marking the fourth consecutive meeting without a change. This decision reflects a cautious approach amid economic uncertainties.

Rate Cut Expectations

Despite the unchanged rate, the Fed's median projection indicates two rate cuts of 25 basis points each by year-end, totaling 50 basis points. However, seven of 19 policymakers expect no cuts, highlighting some controversy.

Economic Context

The Fed lowered its 2025 GDP growth forecast to 1.4% and raised inflation projections to 3%, with unemployment expected to rise to 4.5%. These factors contribute to the complexity of future rate decisions.

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Detailed Analysis

The Federal Reserve's decision on June 18, 2025, to keep its key interest rate unchanged and still expect two rate cuts by year-end reflects a nuanced approach to monetary policy amidst economic uncertainties. Below is a comprehensive breakdown of the decision, its context, and supporting details, drawing from recent news reports, economic projections, and public reactions.

Background and Decision

The Federal Open Market Committee (FOMC) met on June 17-18, 2025, and announced its decision today, June 18, 2025, at 11:50 AM PDT. The Fed maintained the federal funds rate in the target range of 4.25% to 4.50%, consistent with its stance since December 2024. This marks the fourth straight meeting without a rate adjustment, signaling a "wait-and-see" approach as the central bank evaluates recent economic data and external factors.

The decision aligns with market expectations, as noted in recent analyses. For instance, an X post by charliebilello on June 7, 2025, highlighted market expectations for holds in June and July, with cuts anticipated in September and December. This expectation was confirmed by the Fed's action today.

Rate Cut Projections and Controversy

Despite the unchanged rate, the Fed's Summary of Economic Projections (SEP), typically released alongside the statement, indicates a median forecast of two rate cuts by the end of 2025, each of 25 basis points, totaling 50 basis points. This projection is consistent with forecasts from December 2024 and March 2025, as reported by CNBC. However, there is some controversy, as seven of the 19 FOMC participants indicated they expect no rate cuts this year, up from four in March, according to the same source. This divergence highlights differing views on the economic outlook, with some policymakers concerned about persistent inflation.

An X post by KobeissiLetter on June 18, 2025, summarized the decision, noting the median forecast of 50 basis points of cuts, reinforcing the likelihood of two cuts but acknowledging the split in opinions.

Economic Projections and Context

The Fed's economic projections, as detailed in news reports, paint a picture of a slowing economy with inflationary pressures. Key figures include:

• GDP growth for 2025 is now projected at 1.4%, down 0.3 percentage points from March and significantly lower than the 2.5% growth in the previous year, as per AP News.

• Inflation, measured by the Personal Consumption Expenditures (PCE) index, is expected to rise to 3% by year-end, up from 2.1% in April, with core PCE (excluding volatile food and energy) at 2.5% in April, according to CNN.

• Unemployment is projected to increase to 4.5% by the end of 2025, up from the current 4.2%, a 0.3 percentage point rise from current levels, as noted in WFTV.

These projections suggest a stagflationary environment, with slower growth and higher inflation, which complicates the Fed's dual mandate of maximum employment and price stability. Recent economic indicators, such as a nearly 1% drop in retail sales in May and housing starts at their lowest in five years, as mentioned in the CNBC article, further underscore these challenges.

External Factors and Uncertainty

The Fed's decision is influenced by significant external factors, particularly President Trump's trade tariffs and geopolitical tensions. The Fed noted that uncertainty has diminished since the last meeting but remains elevated, as stated in the FOMC statement summarized by CNBC. Tariffs are seen as a potential driver of sustained inflation, with some policymakers worried about another surge, as reported by AP News. Additionally, conflicts in the Middle East, particularly between Israel and Iran, could lead to higher energy prices, adding to inflationary pressures, according to CNBC.

Political pressure also plays a role, with Trump criticizing Fed Chair Jerome Powell, calling for rates to be 2 percentage points lower and labeling Powell "stupid" for not cutting, as noted in the CNBC article. Despite this, the Fed has maintained its independence, focusing on data-driven decisions.

Balance Sheet Adjustments

In addition to the rate decision, the Fed announced it would slow the pace of its balance sheet reduction, part of its quantitative tightening (QT) program. Starting in July 2025, the monthly redemption cap on Treasury securities will be reduced from $25 billion to $5 billion, as mentioned in an X post by Schuldensuehner from March 2025, which aligns with today's decision. This adjustment aims to ensure smooth market functioning while continuing to reduce the Fed's holdings, which were reduced by $2 trillion since June 2024, bringing the balance sheet below $6.4 trillion, as noted in an X post by martypartymusic on February 7, 2025.

Market and Public Reaction

Market participants had anticipated the hold, with reactions focusing on the Fed's projections and Chair Powell's press conference, expected later today at 2:30 PM EDT (11:30 AM PDT). An X post by Kiplinger on June 17, 2025, noted that the Juneteenth holiday on June 19, 2025, would limit market reaction time, as stock and bond markets will be closed. Public and analyst reactions on X, such as those from KobeissiLetter, emphasized the Fed's cautious stance and the split in projections, reflecting ongoing debates about the economic outlook.

Detailed Economic Indicators

To provide a clearer picture, here is a table summarizing the key economic projections for 2025 compared to recent data:

Indicator	2025 Projection	Recent Data (April/May 2025)	Change from March 2025
GDP Growth	1.4%	N/A	-0.3 percentage points
Inflation (PCE)	3%	2.1% (April)	+0.3 percentage points
Core Inflation (PCE)	3.1%	2.5% (April)	+0.3 percentage points
Unemployment Rate	4.5%	4.2% (current)	+0.1 percentage point

This table, derived from reports by AP News, CNBC, and CNN, illustrates the Fed's revised outlook and the challenges it faces.

Conclusion

The Federal Reserve's decision to keep rates unchanged while expecting two cuts by year-end reflects a balanced approach to managing economic slowdown and inflationary pressures. The controversy among policymakers, economic projections, and external factors like tariffs and geopolitical tensions add layers of complexity to the outlook. As the year progresses, the Fed will likely monitor data closely, with potential rate adjustments in September and December 2025, as suggested by market expectations and the SEP.

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Key Citations

• Federal Reserve keeps key rate unchanged expects two cuts

• Fed holds key rate steady sees two more cuts this year

• The Fed holds interest rates steady again as officials wait

• Fed sees 2 interest rate cuts this year while leaving key rate

• Fed holds interest rate steady for fourth time in a row

• Federal Reserve leaves its key rate unchanged but sees slower

• Fed Holds Interest Rates Steady Live Updates and Powell

• Market Expectations Fed Funds Rate June 2025

• Summary of Fed Decision June 2025 Rates Unchanged

• Fed Balance Sheet Reduction Announcement 2025

• Fed Ends Quantitative Tightening June 2025

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