Limit Up! 19th June 2025

Federal Reserve cuts outlook for US economy but holds interest rates steady [FT]

Key Policy Decision

• The Fed kept interest rates steady at 4.25%–4.50% for the fourth consecutive meeting 

• They project two quarter-point rate cuts by the end of 2025, although uncertainty surrounds the timing 

Economic Outlook & Projections

• GDP growth forecast trimmed to ~1.4%.

• Unemployment expected to rise to ~4.5%.

• Inflation (core PCE) projected to climb to approximately 3.0–3.1% by year-end 

• The Fed’s dot plot shows a split: about half expect two cuts, several predict one or none—reflecting considerable divergence among currently 19 policymakers 

Inflation & Tariff Effects

• Powell stressed inflation risks, notably tariff pass-through, as businesses are likely to pass added costs onto consumers 

• He emphasised this pass-through impact would become clearer through the summer months 

Labor Market & Uncertainty

• The labor market remains solid, with unemployment around 4.2%, reflecting a tight but balanced job market 

• Global and policy uncertainties—including trade, Middle East tensions, and reduced federal data collection—are prompting a cautious approach .

Data Quality Concerns

• Powell warned that shrinking federal resources for key data agencies (like the BLS) threaten the ability to make well-informed decisions. Robust data is “a public good.” He cautioned, “we’re increasingly flying blind” 

Politics & Independence

• Under political pressure—especially calls from President Trump for immediate rate cuts—Powell emphasized the Fed’s independence, noting policy decisions are based on economic data, not politics 

Bottom Line

The Fed stayed on hold, preparing for potential rate cuts later in 2025—but remains cautious. They’re watching inflation dynamics (tariffs), labor markets, and upcoming economic data. Moreover, Powell stressed the importance of robust data, distancing policy from political pressures.

MOST IMPORTANT FOR MARKETS

The Fed board announces an open meeting to discuss proposed revisions to the supplementary leverage ratio standards at 2 p.m. next Wednesday, June 25. [FED]