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U.S. Fed leaves key interest rate unchanged, still projects two cuts this year

Published: 19 Jun. 2025, 09:55

U.S. Federal Reserve Chair Jerome Powell attends a press conference following the issuance of the Federal Open Market Committee's statement on interest rate policy in Washington on June 18. [REUTERS/YONHAP]

The U.S. Federal Reserve on Wednesday held its benchmark interest rate steady and continued to project two rate cuts this year, as it remains in a wait-and-see mode to assess the impact of President Donald Trump's tariff policies and the deepening Israel-Iran conflict.

Following the two-day Federal Open Market Committee (FOMC) meeting, the central bank decided to keep the key rate at the 4.25-4.50 percent range, as Trump has been ratcheting up pressure on Fed Chair Jerome Powell to lower the rate.

FOMC members' new median economic projection showed the federal funds rate would be cut to 3.9 percent at the end of the year — the same as the March projection. But it forecast the rate would be reduced to 3.6 percent at the end of next year, 0.2 percentage points higher than the previous forecast.

The Fed also projects the United States' GDP to grow by 1.4 percent this year, down from 1.7 percent projected in March.

In addition, the median projection indicated that Personal Consumption Expenditures (PCE) inflation could reach 3 percent at the end of the year, higher than the March forecast of 2.7 percent. PCE is a measure of household consumer spending on goods and services in the United States.

During a press conference, the Fed chair noted that uncertainty stemming from Trump's tariff policies has diminished, but remains elevated.

"Uncertainty really peaked in April, and since then has come down," he said, referring to the period in April when Trump rolled out steep "reciprocal" tariffs, including 25 percent duties on Korea, only to pause them until July 8 to allow for negotiations.

A trader works, as a screen broadcasts a news conference by U.S. Federal Reserve Chair Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange in New York City on June 18. [REUTERS/YONHAP]

He pointed out that increases in tariffs this year are likely to push up prices and weigh on economic activity.

"The effects [of the tariffs] on inflation could be short-lived, reflecting a one-time shift in the price level. It's also possible that the inflationary effects could instead be more persistent," he said.

"Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully in the prices, and ultimately on keeping longer-term inflation expectations well anchored."

He also stressed that the size of tariff effects and their duration are "highly uncertain."

"That is why we think the appropriate thing to do is to hold where we are as we learn more," he said. "And we think our policy stance is in a good place where we're well-positioned to react to incoming developments."

Moreover, Powell addressed a question about Trump's criticism of him and whether it should be ignored until his term ends in May next year, or if it could affect the economic outlook going forward.

"My standpoint is [that] it's not complicated. What everybody on the FOMC wants is a good, solid American economy with strong labor market and price stability ... I think our policy is well-positioned right now to deliver that and to be able to respond in a timely way as the data lead us around," he said.

"The economy has been resilient, and part of that is our stance."

During a press availability hours ahead of the rate decision, Trump criticized Powell as a "stupid person," arguing that the borrowing rate should be at least 2 percentage points lower.

The Fed paused rate cuts in January, March and last month following a quarter percentage point reduction in December.

This week's rate decision has widened the gap between the key rates of Korea and the United States by up to 2 percentage points.

Yonhap