The Fed forecast that everyone's watching

Key Points

• Research suggests the Fed forecast everyone is watching is from the June 17-18, 2025, meeting, projecting slower growth, higher inflation, and potential rate cuts later this year.

• It seems likely that markets are focused on expected federal funds rate cuts, with projections indicating a drop from 4.25%-4.50% to 3.9% by year-end, possibly two 25-basis-point cuts.

• The evidence leans toward concerns about inflation at 3.0% for 2025, above the 2% target, and slower GDP growth at 1.4%, amid discussions on trade policy impacts.

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The Fed Forecast Everyone Is Watching

The Federal Reserve's latest forecast, which is drawing significant attention, comes from the Federal Open Market Committee (FOMC) meeting held on June 17-18, 2025. At this meeting, the Fed maintained the federal funds rate at 4.25% to 4.50%, but their economic projections suggest a complex outlook. They anticipate slower economic growth, with real GDP growth projected at 1.4% for 2025, down from earlier estimates. Inflation is expected to be higher than desired, with personal consumption expenditures (PCE) inflation at 3.0% for 2025, above the Fed's 2% target. This has raised concerns, especially given discussions about trade policies impacting inflation.

Markets are particularly focused on the Fed's projection that the federal funds rate will drop to 3.9% by the end of 2025, implying potential rate cuts. This could mean two 25-basis-point reductions later this year, with some analysts and officials debating whether the first cut might happen in September or possibly July, depending on upcoming economic data like the June jobs report. The forecast reflects a balance of risks, with unemployment expected at 4.5% and ongoing monitoring of labor markets and inflation pressures.

This forecast is significant because it shapes expectations for borrowing costs, investment decisions, and economic policy, affecting everyday Americans through potential changes in loan rates and economic stability. For the most current updates, you can refer to the Federal Reserve's official statements.

• Federal Reserve - FOMC Projections, June 18, 2025

• Federal Reserve - FOMC Statement, June 18, 2025

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Survey Note: Detailed Analysis of the Fed Forecast Everyone Is Watching

This section provides a comprehensive exploration of the Federal Reserve's forecast that is currently capturing widespread attention, focusing on the projections and policy outlook from the June 17-18, 2025, FOMC meeting. The analysis is informed by recent data, official statements, and public discussions, reflecting the situation as of July 5, 2025.

Background and Context

The Federal Open Market Committee (FOMC) meets eight times a year to discuss monetary policy, including interest rates, and releases economic projections at select meetings, known as the Summary of Economic Projections (SEP), typically in March, June, September, and December. The June 17-18, 2025, meeting was one such occasion, following a schedule that included earlier meetings on January 28-29, March 18-19, and May 6-7, with no changes to the federal funds rate in those sessions. The current federal funds rate target range, as maintained in June, is 4.25% to 4.50%, and the June meeting's projections have become a focal point due to their implications for economic growth, inflation, and future rate decisions.

The FOMC's dual mandate is to promote maximum employment and price stability, with a long-term inflation target of 2%. The June projections, released alongside the statement, reflect participants' assessments based on available data and their views on appropriate monetary policy, including a path for the federal funds rate. These projections are not a committee plan but individual forecasts, subject to uncertainty, and are closely watched by markets, policymakers, and the public for their impact on financial conditions and economic expectations.

Key Projections from the June 2025 FOMC Meeting

The Summary of Economic Projections from June 18, 2025, provides detailed forecasts for 2025, 2026, 2027, and the longer run, with medians, central tendencies, and ranges for key economic variables. Below is a table summarizing the median projections, which are the focus of market attention:

Variable	2025 Median	2026 Median	2027 Median	Longer Run Median
Change in real GDP	1.4%	1.6%	1.8%	1.8%
Unemployment rate	4.5%	4.5%	4.4%	4.2%
PCE inflation	3.0%	2.4%	2.1%	2.0%
Core PCE inflation	3.1%	2.4%	2.1%	-
Federal funds rate	3.9%	3.6%	3.4%	3.0%

Notes:

• Projections are percent changes from Q4 of the previous year to Q4 of the year indicated, except for unemployment rate (average civilian rate in Q4) and federal funds rate (midpoint of target range or level at year-end).

• Longer-run projections for core PCE inflation are not collected.

• Compared to March 2025 projections, real GDP growth for 2025 was downgraded from 1.7% to 1.4%, PCE inflation was raised from 2.7% to 3.0%, and core PCE inflation from 2.8% to 3.1%, reflecting a stagflationary outlook.

The federal funds rate projection of 3.9% for 2025, compared to the current range of 4.25%-4.50% (midpoint 4.375%), suggests an expected decrease of about 0.475%, consistent with market expectations of two 25-basis-point rate cuts later in 2025. This is supported by discussions in recent analyses, with some anticipating the first cut in September and others considering a possible July cut, depending on data like the June jobs report.

Market and Public Reaction

Public and market reactions, as seen in recent discussions on X (formerly Twitter), highlight the forecast's significance. For instance, Goldman Sachs raised its forecast to expect three rate cuts in 2025, starting in September, citing smaller-than-expected tariff impacts and stronger disinflation. Senator Elizabeth Warren noted that the Fed's forecast of higher inflation and slower growth is partly driven by Trump's trade policies, stating, "Donald Trump is standing in the way of lower rates and lower costs for Americans." Fed Chair Jerome Powell, in post-meeting comments, emphasized the forecast's uncertainty, noting expectations of "meaningful increase in inflation over the course of this year," which aligns with the 3.0% PCE inflation projection for 2025.

Market analysts, such as TD Securities, suggest that a significant miss in the June jobs data could trigger a July rate cut, with the unemployment rate projected at 4.5% by year-end, slightly above current levels. This reflects the Fed's attentiveness to labor market conditions, as stated in the June 18 statement, which noted "solid labor market conditions" but also "uncertainty about the outlook has diminished but remains elevated."

Policy Implications and Economic Impact

The forecast has implications for borrowing costs, investment decisions, and economic stability. Higher inflation projections, at 3.0% for 2025, above the 2% target, could lead to increased costs for consumers, particularly in loans and mortgages, as inflation influences interest rates. The expected rate cuts, however, could ease borrowing costs later in the year, potentially stimulating economic activity. Slower GDP growth at 1.4% for 2025, compared to previous estimates, suggests a cautious outlook, with potential impacts on job creation and economic expansion.

The Fed's statement on June 18, 2025, reiterated their commitment to maximum employment and 2% inflation over the longer run, while continuing to reduce holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as part of balance sheet normalization. This dual approach reflects a balance between supporting economic growth and managing inflationary pressures, with ongoing monitoring of labor markets, inflation expectations, and international developments.

Historical Context and Comparisons

Historically, FOMC projections have been subject to revisions based on incoming data, as seen in the comparison with March 2025 projections. The June downgrade in GDP growth and upward revision in inflation reflect recent economic conditions, including tariff uncertainties mentioned in discussions. For example, the 2011 debt ceiling crisis led to market volatility and higher borrowing costs, and similar concerns are evident today, with trade policies adding to economic uncertainty. The current forecast, as of July 5, 2025, underscores the Fed's wait-and-see approach, with Chair Powell noting in June that the Fed is "well positioned to wait" for greater clarity before adjusting policy.

Conclusion and Implications

The Fed forecast everyone is watching, from the June 17-18, 2025, meeting, projects slower economic growth at 1.4% for 2025, higher inflation at 3.0%, and potential rate cuts to 3.9% by year-end, implying two 25-basis-point reductions. This outlook is shaping market expectations and policy debates, with significant attention on the timing of rate cuts and the impact of trade policies on inflation. For individuals, this could mean higher costs in the short term due to inflation, with potential relief from lower rates later, affecting loans, investments, and economic stability. For the most current updates, refer to official Federal Reserve sources, such as the FOMC projections and statements, available at Federal Reserve - FOMC Projections, June 18, 2025 and Federal Reserve - FOMC Statement, June 18, 2025.

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