June 18, 2025
The Federal Open Market Committee (FOMC) announced its decision to maintain the target range for the federal funds rate at 4.25% to 4.50%, reaffirming its commitment to achieving maximum employment and returning inflation to its 2% objective over the longer run. While recent fluctuations in net exports have influenced the data, broader indicators suggest that economic activity continues to expand at a solid pace. The labour market remains strong, with a low unemployment rate and robust job gains, although inflation remains somewhat elevated. The Committee noted that uncertainty around the economic outlook has diminished but remains elevated, and it remains attentive to risks on both sides of its dual mandate.
In support of its goals, the Committee will continue reducing its holdings of Treasury securities and agency debt and mortgage-backed securities. It emphasized a data-dependent approach, stating that it will carefully assess incoming data, the evolving economic outlook, and the balance of risks when considering the extent and timing of any additional policy adjustments. The Committee also reiterated its readiness to adjust the stance of monetary policy as appropriate should risks emerge that could impede progress toward its employment and inflation goals. In making these assessments, the Fed will consider a wide range of information, including labour market conditions, inflation pressures and expectations, and financial and international developments.
Summary of Economic Projections – June 2025
The FOMC participants provided updated projections for key economic indicators through 2027:
- Real GDP Growth: The median projection for 2025 is 1.4%, rising modestly to 1.6% in 2026 and 1.8% in 2027, reflecting expectations of a gradual return to trend growth. The longer-run projection remains at 1.8%.
- Unemployment Rate: The unemployment rate is expected to remain relatively stable, with a median forecast of 4.5% in 2025, 4.4% in 2026, and 4.3% in 2027, aligning closely with the longer-run estimate of 4.2%.
- Inflation (PCE): Inflation is projected to ease gradually. The median projection for headline PCE inflation is 3.0% in 2025, falling to 2.4% in 2026 and 2.1% in 2027, approaching the Fed’s 2% target.
- Core PCE Inflation: Core inflation, which excludes food and energy, is expected to follow a similar path: 3.1% in 2025, 2.4% in 2026, and 2.1% in 2027.
- Federal Funds Rate: The median projection for the federal funds rate is 3.9% in 2025, declining to 3.6% in 2026 and 3.4% in 2027, with a longer-run estimate of 2.5% to 3.0%, suggesting a gradual easing of monetary policy as inflation pressures subside.
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