Federal Reserve confirms: Key interest rates unchanged in June as it forecasts higher inflation

The Federal Reserve has decided to maintain its benchmark interest rate in the 4.25% to 4.5% range, resisting political pressure for cuts while signalling a more inflationary environment ahead.

This policy stance reflects the central bank’s concern that inflationary forces, partly driven by the Trump Administration‘s tariffs, could accelerate even as broader economic growth slows.

The decision, announced Wednesday, June 18 aligns with the Fed’s cautious “wait-and-see” posture as it continues to monitor the impact of current economic policies.

Despite a weakening labor market and decreasing retail activity, the central bank remains committed to its dual mandate: stabilizing prices and maximizing employment.

“For the time being,” said Jerome Powell, chair. “We are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

The Fed’s latest projections illustrate the challenge it faces: Inflation. As measured by the Personal Consumption Expenditures Price Index, is now expected to rise to 3% in 2025, up from an earlier forecast of 2.7%.

At the same time, gross domestic product (GDP) growth is projected to slow to 1.4% and unemployment is also expected to rise beyond expectations, although by a 0.3% difference.

Is Donald Trump to blame?

One major factor contributing to the inflation outlook is the imposition of new tariffs by President Trump, as many economists expect the tariffs to gradually lift prices throughout the summer-especially in sectors such as automotive goods.

The 79-year-old announced a wave of 10% tariffs (minimum) on April 2, a date he proclaimed as ‘Liberation Day’ and immediately sent markets into chaos. Customers within the United States are expected to foot this cost as businesses pass the burden on to them with price rises.

“We still expect to see some abnormally large increases in goods prices by later in the summer,” Citi analysts reported. “Some sign of tariff impact could be seen as soon as June in components like autos.

“Soft demand suggests a lower likelihood that any price increases from tariffs will lead to persistent inflationary pressure. That spreads to services and non-tariff impacted goods.”

Retail sales have underperformed, and hiring has slowed markedly. Continuing jobless claims have reached nearly two million, the highest level since November 2021, while hiring rates are at their lowest in more than a decade.

Despite growing economic headwinds, the Fed has not committed to any immediate rate reductions and Trump has openly criticized Powell for holding rates steady.

Nonetheless, Powell maintained that the central bank must act based on evidence, not politics and more changes to U.S. trade policy could further influence inflation, particularly as a 90-day pause on new tariffs ends on July 9.

Market expectations remain cautious and for now, and borrowers are unlikely to see relief as interest rates on credit cards and loans remain elevated.