The Federal Reserve has decided to maintain short-term interest rates, keeping the federal funds rate target range at 4.25 percent to 4.5 percent, a level it has held since December of last year. The Federal Open Market Committee (FOMC), responsible for setting these rates, is adopting a cautious approach due to economic uncertainties and conflicting pressures on its dual mandate of price stability and full employment.
Recent data offers limited guidance; inflation remains high but has not surged as previously feared due to tariffs. Employment figures suggest a weakening labor market, though not one in contraction.
The FOMC's June meeting included projections reflecting these challenges. The "dot plot," which shows each member's forecast for future rates, indicates no clear consensus. The median projection suggests a half-percentage-point cut by year's end. However, seven members expect the rate to remain unchanged, two foresee a quarter-point reduction, eight anticipate a half-point decrease, and two project a three-quarters point drop.
Following the meeting, two voting FOMC members expressed openness to supporting a rate cut at their next session in late July. According to CME Fed Watch's analysis of financial market trading in interest rate derivatives, there is currently only a 25 percent likelihood of a quarter-point cut in July but nearly 90 percent probability at the September meeting. By October, there is an estimated 75 percent chance that the federal funds rate will be half-a-point lower than now and nearly 50 percent chance of being three-quarters of a point lower by year-end.
Overall, indications are that the federal funds rate will eventually decline, though the timing and extent remain uncertain.