The Federal Reserve unanimously voted to hold its benchmark Federal Funds Rate steady at 4.25% to 4.5%, continuing the pause that began in January. This decision, widely anticipated by analysts, reflects the Fed’s ongoing concerns about balancing risks related to both inflation and unemployment.
Remember: The Fed Funds Rate affects the overnight lending rate between banks, influencing broader interest rates throughout the economy, though not directly setting mortgage or long-term rates.
What’s the bottom line? The Fed remains committed to its dual mandate: maintaining price stability and promoting maximum employment. Achieving both goals simultaneously can be challenging, especially as new tariffs add to economic uncertainty. Typically, persistent inflation discourages rate cuts, while signs of an economic slowdown would prompt the Fed to consider lowering rates.
Looking forward, the Fed will closely watch upcoming reports on inflation and employment, as its future policy decisions may depend on which risks become more pressing. Notably, the Fed’s most recent projections for 2025 indicate that core PCE inflation is now expected to reach 3.1%, higher than the previous estimate of 2.8%. The unemployment rate is also projected to edge up slightly to 4.5% from the 4.4% estimate in March.
Despite these uncertainties, most Fed officials still anticipate two interest rate cuts later this year.