FOMC Statement, Projections and Press Conference – Currency Thoughts
FOMC Statement, Projections and Press Conference
June 18, 2025
Statement: No significant changes were made from the May 7 statement. Swings in net exports were observed but do not change the strong continuing pace of growth. Unemployment remains low; labor markets are still solid; and inflation remains somewhat elevated.
The federal funds target was not changed, which matches the expected decision, and balance sheet reduction continues at the rate outlined previously.
Other paragraphs are as before, and the vote to keep the interest rate target the same, as in May, was unanimous.
Projections: Growth in 2025 and 2026 was revised lower to 1.4% and 1.6%, then rises to 1.8% in 2027. PCE inflation, both total and core, got revised higher. Total inflation this year is put at 3.0%, then slows to 2.4% in 2026. Core PCE rises 3.1% in 2025 and 2.4% next year. inflation and growth projections in 2027 remain unchanged. The jobless rate is bumped up for all three years to 4.5% in 2025 and 2026 and to 4.4% in 2027. The perceived appropriate federal funds rate at end-2025 hasn’t been revised and implies 2 small cuts. The appropriate end-year rate levels in 2026 and 2027 are 25 basis points higher than before.
Chairman Powell’s Press Conference: Nothing truly unfamiliar surfaced in the chairman’s answers to a variety of questions. The tariff dynamic will be critical in coming months. Increases are a given, but much remains unknown such as the size of the increases, whether increases happen at once or in many steps, the timing of the changes and, most importantly, the distribution of tariff costs among the manufacturer, exporter, wholesaler, businessman, retailer and ultimate consumer. Fed officials believe that coming months will yield a lot of knowledge regarding these matters. They are quite convinced that a period of higher rates of price increase will occur later this year but unsure at this time how long that bulge will occur and how quickly potentially dampening effects on inflation caused by weaker growth attributed to the tariffs, deportations, and other factors might emerge. The good news, as Powell said at prior press conferences, is that officials see no urgency to change the current policy stance. Unemployment remains historically low. The labor market is functioning well in other respects like labor force participation with lessening labor supply matched by lessening labor demand. GDP growth is in a 1-2% range, and there is no sense of imminent recession.
With so much uncertainty that hopefully will continue to recede during the second half of this year, the approach that seems to carry the fewest risks is one of keeping the current stance, which is on the restrictive side of neutrality, and proceed with further cuts when outlook becomes less murky. Two more cuts in 2025 are implied, matching the implication of the dot plot forecast three months ago, but in response to the final question about any possibility of a rate hike over the coming year or so, Powell didn’t rule such out but said it’s not part of committee members’ baseline scenario.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: FOMC statment and Powell Q&A
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