The Federal Reserve (Fed) decided on June 18, 2025, to keep the interest rate unchanged in a range of 4.25% to 4.50%. This decision was anticipated by nearly all market participants and reflects the Fed’s cautious stance in light of the current economic situation.
Reasons for the Rate Pause
- Inflation: Core inflation (PCE core inflation) is still above the target level of about 2% at approximately 2.7%, which does not currently justify a rate cut.
- Economic Growth: The Fed has lowered its growth expectation for 2025 to only about 1.4% and continues to see solid economic activity despite some uncertainties arising from factors such as trade policy.
- Labor Market: The unemployment rate is projected to be about 4.3% by the end of the year; the labor market is considered robust and stable.
Impacts on Markets and Investors
- Market Reaction: Following the announcement of the interest rate decision, US stock markets reacted moderately positively: the S&P 500 rose by about 0.6%, the Dow Jones by around 0.4%, and the Nasdaq by approximately 0.8%.
- Investor Strategy: In an environment with stable interest rates, short-term rate cuts remain uncertain. Some analysts expect possible cuts in July or September due to the Fed’s data-dependent approach; others predict a longer period without changes due to ongoing trade uncertainties.
- Outlook: The so-called Dot Plot indicates an interest rate of between about 3.75% and 4% by the end of the year, suggesting two possible cuts further into 2025.
Political Context
US President Donald Trump continues to exert pressure on the Fed, demanding significant rate cuts to support the economy. He particularly criticizes Fed Chair Jerome Powell and threatens interventions in his term. Despite these political tensions, the central bank remains committed to its data-driven approach without premature adjustments to the interest rate.
In summary, the Federal Reserve’s decision to leave the interest rate unchanged reflects a cautious approach in light of moderate inflation above the target level and a robust labor market while facing a dampened growth outlook. For investors, this means stability in financing costs for the time being, as well as increased attention to future data releases and political developments in the US.