The Federal Reserve (Fed) continues its course and keeps the key interest rate unchanged for the fourth consecutive time at its meeting on June 18, 2025. This approach results from a complex monetary policy balancing act influenced by several factors.
Background and Current Situation
- Key Interest Rate Level: The key interest rate currently stands between 4.25 and 4.50 percent and was last left unchanged in May 2025.
- Inflation: Core inflation remains stubbornly above the target mark of two percent, as the disinflationary trend has largely come to a standstill since the beginning of the year.
- Labor Market: Recent wage and employment data indicate a robust labor market that justifies another pause in interest rates.
- External Factors: Tariffs, migration policy, and geopolitical conflicts, such as those in the Middle East, could further fuel inflation.
Expectations for Monetary Policy
The Fed is under political pressure, particularly from U.S. President Trump, to demand strong interest rate cuts, but it must maintain its independence. Therefore, most analysts do not expect any change in the key interest rate at the current meeting.
Forecasts for the Rest of the Year:
- There is no clear consensus on the future direction of interest rate policy. Some economists expect a reduction starting in July or September, while others do not anticipate any cuts until December or even not at all this year.
- Wells Fargo forecasts three interest rate cuts of 0.25 percentage points each by the end of the year.
- UBS Global Wealth Management anticipates a possible easing of a total of one percentage point starting in September, depending on conditions such as easing wage growth.
Impact on Markets and Investors
The Fed’s decision has significant implications for financial markets:
- Stock Markets: High interest rates can lead to volatile price movements as companies face higher borrowing costs.
- Bond Markets: These tend to benefit from stable or rising yields, but uncertainties can lead to fluctuations.
- Currency Markets: The U.S. dollar remains attractive to international investors as long as the Fed does not lower rates, which could burden exports.
- Investor Decisions: Investors need to prepare for higher capital costs; defensive strategies may become more significant.
Conclusion
The Federal Reserve remains cautious in light of ongoing inflation and a robust labor market. A short-term change in the key interest rate seems unlikely; however, long-term forecasts remain uncertain due to external risks.