Stocks didn’t move much Wednesday after the Federal Reserve left interest rates unchanged, keeping the benchmark federal funds rate in its 4.25% to 4.5% range. That’s where the rate has stood since the Fed’s last cut in December.
The decision was widely expected. The SPDR S&P 500 ETF Trust (SPY) was last trading fractionally higher on the day, hovering near the same levels as before the rate announcement.
Along with its rate decision, the U.S. central bank released an updated Summary of Economic Projections, which reflected a slightly more cautious outlook. Fed officials now forecast GDP growth of 1.4% in 2025 and 1.6% in 2026, down from previous estimates of 1.7% and 1.8%. At the same time, they see PCE inflation coming in at 3% this year and 2.4% next year, both higher than the March projections of 2.7% and 2.2%.
In his post-meeting press conference, Fed Chair Jerome Powell sounded generally upbeat on the economy, saying it remains on relatively solid footing, though he acknowledged there could be some modest cooling in the labor market. He emphasized that the future path of rates is highly uncertain and said most Fed officials are comfortable holding steady unless the data change significantly.
The median forecast still shows two rate cuts this year, the same as in March. But there’s growing division among policymakers, with several expecting no cuts at all.
“No one holds these rate paths with a great deal of conviction,” Powell said.
Tariffs were once again a key point of discussion, though Powell didn’t offer much clarity. “Because the United States has implemented no increases in tariffs of this size in many decades, there is little relevant empirical evidence on their effects,” he said.
Powell added that the Fed expects to “learn a great deal more over the summer on tariffs” and acknowledged that someone will have to bear the cost—whether it’s consumers, companies or foreign exporters.
The potential inflationary impact of tariffs appeared to be on the Fed’s radar and may help explain why policymakers are in no rush to cut rates, even as inflation has been cooling in recent months.
Market trading volume was light ahead of the Juneteenth holiday, when U.S. markets will be closed, and investors saw little in the Fed’s decision or projections that came as a surprise.
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