Quick overview

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U.S. President Donald Trump had harsh words for Federal Reserve Chairman Jerome Powell—the man he appointed during his previous term—claiming Powell had done a poor job.

Nonetheless, the Federal Reserve ignored political pressure and on Wednesday held interest rates steady at 4.25–4.5%, in line with market expectations.

Still, Fed officials signaled that borrowing costs are likely to come down later this year, though at a slower pace than previously expected, largely due to higher inflation forecasts driven by Trump’s new import tariffs.

The Fed’s quarterly economic projections painted a slightly stagflationary outlook, forecasting GDP growth to slow to 1.4%, unemployment to rise to 4.5%, and inflation to climb to 3%, significantly above current levels.

While policymakers still expect to cut rates by 50 basis points this year—consistent with their March and December forecasts—they now project only one additional 25 basis point cut in 2026 and another in 2027, reflecting a prolonged effort to return inflation to the 2% target.

Federal Reserve – Economic Projections

According to the Fed’s latest projections, inflation will likely remain elevated at 2.4% through 2026, before dipping to 2.1% in 2027, even as unemployment holds relatively steady.

“Uncertainty around the economic outlook has declined but remains elevated,” the Fed stated in its latest policy announcement—a revision of the more cautious wording from May, which came amid heightened trade tensions.

The Fed now expects 1.4% GDP growth for 2025, down from 1.7% in its March projections, and sees year-end unemployment at 4.5%, slightly above its previous 4.4% forecast.

So far, however, “the unemployment rate remains low, and labor market conditions are solid,” the Fed emphasized in a statement approved unanimously by policymakers.

The statement notably did not reference the recent outbreak of hostilities between Israel and Iran, or the potential implications for global oil markets and other assets.

“The tone of the statement was much more constructive than in May,” analysts at Balanz Research noted, “indicating that uncertainty has decreased, although it remains high—whereas in May, the Fed had said it had increased. The committee also signaled vigilance regarding risks on both sides of its dual mandate, a more balanced view compared to May, when it emphasized rising risks of both higher inflation and unemployment.”

Trump’s Pressure Campaign

Meanwhile, the Fed continues to disregard Trump’s calls for immediate rate cuts—a move central bank officials believe would undermine efforts to bring inflation back to the 2% target until the effects of the new tariffs are better understood.

Ahead of the meeting, Trump publicly insulted Powell, calling him “stupid” and demanding the Fed slash interest rates in half—a drastic measure typically reserved for severe economic crises.