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When Federal Reserve officials meet for their June policy-setting meeting, it’s widely expected that they’ll hold interest rates steady at the current range of 4.25%-4.50%. Analysts say that with inflation slowly cooling and the labor market holding steady, the central bank has the luxury of waiting.
Beyond next week’s decision, new projections for interest rates and the economy released after the meeting will tell a more important story about what could be ahead for the central bank in 2025. But analysts say those projections won’t be a guarantee of what’s to come.
“It’s hard for the Fed to have a lot of certainty about its forecast right now, because so many things could change between now and the end of the year,” says Derek Tang, cofounder of monetary policy research firm LHMeyer.
Amid rapidly evolving tariff policy and other fiscal priorities from the Trump administration, the economic outlook for the months ahead remains highly uncertain. As they weigh monetary policy decisions, Fed officials are juggling today’s solid economic data with the potential for higher inflation, slower growth, and a weaker job market down the line.
Market participants have already scaled back their predictions for interest rate cuts this year, and Wednesday’s projections could show Fed officials following suit. “We’re getting really close to the endgame for 2025,” says Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management.
The Economy Looks Solid—for Now
Right now, monthly government data shows that inflation is cooling while the labor market remains relatively healthy, if less robust than it was a year ago. The Consumer Price Index report released Wednesday showed slower price growth than economists expected in May, and May employment data showed healthy job creation in the US economy.
But the impact of President Donald Trump’s new tariffs is looming, even if it isn’t visible in the data yet. And measures of sentiment for consumers and businesses have deteriorated.
CPI vs. Core CPI
Source: Bureau of Labor Statistics. Data as of May 31, 2025.
That leaves the Fed firmly in wait-and-see mode as it watches for clearer signals about the path of the economy. Inflation is especially difficult to predict because tariffs will certainly change the picture, but it’s not yet clear how much. “The Fed isn’t worried about inflation today; it’s worried about inflation tomorrow, whether it goes up because of tariffs,” says Tang. “And we won’t know the answer to that for a few months.”
Central bankers have said as much. “I see greater upside risks to inflation at this juncture and potential downside risks to employment and output growth down the road, and this leads me to continue to support maintaining the FOMC’s policy rate at its current setting if upside risks to inflation remain,” Fed Governor Adriana Kugler said in prepared remarks last week.
Officials will also be looking for signs of stress in the labor market, like changes in hiring, firing, or the labor participation rate. They’ve emphasized that they will respond to signs of major stress in the job market by lowering rates quickly if necessary.
Unemployment Rate
Source: Bureau of Labor Statistics. Data as of 2025-05-01 00:00:00.
Keep an Eye on the Dots
With policy unlikely to shift in the near term, market watchers will turn their attention to the outlook for future meetings.
“The biggest issue for financial markets is when the next cut will be, and they’re going to get a pretty concrete signal from the dot plot, which will be updated for the first time since March,” explains Tang. Released quarterly, the dot plot is the Fed’s collection of forecasts for the economy and interest rates. It’s a snapshot of how each member of the FOMC is thinking about the months and years ahead.
Economic forecasting is always difficult, but the Fed is in an especially tricky spot this summer. The central bank’s last set of projections was released before Trump’s market-moving tariff announcement on April 2. At the time, the FOMC was expecting two rate cuts in 2025. Since then, sticky inflation, the shock of tariff hikes, and other potential changes in policy and regulation from the Trump administration have upended the outlook.
As a result, analysts say even fewer cuts could be on the table for this year. Tang says just one cut for 2025 wouldn’t be too surprising. Bond futures traders have already pushed back their expectations for cuts significantly this year. Rosner would be more surprised by a dot plot with no cuts at all, which would “be read as pretty hawkish.”
Not Just Tariffs
While tariffs have dominated headlines these past few months, they’re not the Fed’s only consideration. Tang says Fed officials must also consider changes to immigration policy, regulatory policy, and government spending, all of which will have ripple effects through the economy.
Fed officials have been very clear that they are “not in the camp of forecasting policy,” Rosner emphasizes. They don’t make rate decisions based on policies that have not yet been implemented, but instead let hard economic data lead the way. Over the long term, Rosner adds, officials are also continuing to grapple with the so-called neutral rate—the point at which rates are neither accommodative nor restrictive. It’s possible that this equilibrium may be higher than in the past, which would mean fewer rate cuts are necessary over the longer term.
What do Markets Expect from the Fed?
Financial markets are expecting to see the first Fed cut in September. Bond futures traders see a roughly 60% chance of a cut happening then, according to data from the CME FedWatch Tool, while they see an 88% chance that the Fed cuts at least twice by year-end. Rates have been sitting at their current level since last December.
Federal-Funds Rate Target Expectations for September 17, 2025 Meeting
Source: CME FedWatch Tool. Data as of June 11, 2025.
Among Wall Street forecasters, a consensus is more difficult to come by. Rosner expects one cut in 2025. JP Morgan chief US economist Michael Feroli doesn’t expect to see a cut until December. Morningstar chief US economist Preston Caldwell anticipates one cut in July and another by the end of the year. Economists at Wells Fargo expect the rate to lower by 0.75 percentage points (which could mean three 0.25-point cuts) by year-end.
Meanwhile, UBS Global Wealth Management senior US economist Brian Rose is looking for 100 basis points of easing beginning in September, which he notes “could be delayed if payroll growth remains solid at the same time that tariffs are pushing up inflation.”
Schedule of 2025 Fed Meetings on Interest Rates
June 25July 30Sept. 17Oct. 29Dec. 10
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
Correction: A previous version of this story misspelled the name of Fed Governor Adriana Kugler.
