US | Fed holds the policy rate steady amid vast uncertainty

Summary

While directionally consistent with our expectations, the SEP adjustments (higher inflation, weaker growth, and a slightly higher unemployment rate) were not sufficient to alter the median fed funds rate projection for end-2025, which remains at 3.9% (two cuts).

Key points

• Key points:
• The FOMC left the federal funds rate unchanged at 4.25-4.50%, reaffirming its cautious stance amid still-elevated, though recently “diminished,” uncertainty.
• Powell reaffirmed the Fed’s strong preference to remain on hold amid lingering uncertainty over the inflationary impact of tariffs.
• Rejecting the idea of easing based on recent soft inflation prints, Powell repeatedly stressed that monetary policy must remain forward-looking.
• The dot plot now reveals two almost evenly sized camps—those expecting two cuts and those expecting none—likely reflecting a divide between their growth outlook.
• Today’s decision and SEP revisions are consistent with our view of no rate changes until December, when we anticipate a single 25bp cut.

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