The Federal Reserve (Fed) is expected, unsurprisingly, to keep its key interest rates unchanged at its June 18 meeting, marking a fourth consecutive decision to maintain the status quo since January. The key issue will therefore not be the level of rates—largely anticipated by the markets—but the revision of economic projections and the well-known dot plot. The expected adjustments, related to developments in economic policy, should reflect a slowdown in growth, inflation more persistent than expected despite the pleasant surprises of recent months and a weakening labor market. In a context of stagflation risks and high uncertainty, the Fed is likely to reaffirm its cautious stance, delaying any new rate cuts as long as objective economic data (“hard data”) do not clearly justify easing.
Our main expectations:
- Key interest rates: The Fed should maintain its current target range between 4.25% and 4.50%, in line with consensus expectations.
- Growth projections: Real GDP is expected to slow in 2025, settling in a range of 1.0% to 1.5%, a pace below its long-term potential.
- Inflation: Inflationary pressures should remain high this year (Core PCE between 3.0% and 3.5%) before gradually easing toward 2.0% to 2.5% by 2027. The Fed should signal the high level of uncertainty surrounding these projections.
- Labor market: The unemployment rate is expected to hover around 4.5% over the entire projection horizon.
- Dot plot: We anticipate the dot plot will now project only a single 25 basis point cut this year, compared to two in March, bringing the key rate down to 4.1% by year-end.
- Press conference: Jerome Powell is expected to reaffirm the data-dependent approach, emphasize the uncertainties surrounding the effects of the Trump administration’s economic policies, and highlight the importance of the dual mandate (inflation/employment).
In summary:
The Fed is unlikely to consider lowering rates until it has clearer visibility on the combined effects of the economic and regulatory measures enacted by the Trump administration. However, in the event of a marked and unexpected deterioration of the labor market, the Fed could intervene to support the economy, provided long-term inflation expectations remain well anchored.
Completed 16/06/2025. This commentary is provided for information purposes only. The opinions expressed by La Française are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 128 Boulevard Raspail, 75006 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138 and registered with ORIAS (www.orias.fr) under no. 25003045 since 11/04/2025. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.