The Federal Reserve left interest rates unchanged at its June policy meeting on Wednesday and maintained its forecast for two rate cuts in 2025. But Chair Jerome Powell was adamant about one point: Tariffs will likely push inflation higher in the months ahead.
Powell, speaking at a press conference following the Federal Open Market Committee’s rate decision, emphasized the high level of uncertainty facing the economy but was much more certain about this specific inflation risk.
“Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs,” he said, citing early signs of price pressures and business plans to pass along higher costs. “We have to take that into account.”
The Fed’s updated Summary of Economic Projections, or SEP, also released on Wednesday, reflects that view. The SEP includes quarterly forecasts from policymakers for inflation, growth, unemployment and interest rates. It also features a closely watched dot plot, a chart showing each official’s individual projection for where the federal-funds rate will end the year.
These projections aren’t policy promises but they do offer a window into the Fed’s collective thinking, and how much internal consensus exists.
The median forecast for core PCE inflation, the Fed’s preferred measure, rose to 3.1% in 2025, up from 2.8% in March. At the same time, officials expect economic growth to slow and the unemployment rate to rise slightly. The combination edges toward a stagflationary setup—where economic growth slows and prices increase. Powell pushed back against that framing, saying he wasn’t necessarily expecting an economic slowdown in the back half of the year.
The dot plot continues to show two cuts this year, but the internal distribution has shifted. More officials now expect just one cut or none at all, than in March. The median holds, but narrowly. Economists sometimes refer to this situation as a soft median, vulnerable to slipping lower with just one or two more hawkish dots.
Powell acknowledged that fragility on Wednesday afternoon. “No one holds these rate paths with a great deal of conviction,” he said. When asked how to interpret the SEP, he turned the question back on the reporter. “What would you write down?” he asked. “It’s not easy to do that with confidence.”
Analysts echoed Powell’s point. Seven of 19 Fed policymakers are forecasting no cuts at all this year, but “in the great scheme of things these forecasts are pretty meaningless as there is so much economic and political uncertainty and the outlook for policy could change very rapidly,” wrote economists at ING in a note Wednesday.
The Fed appears to be biding its time while balancing near-term inflation risks with the markets’ desire for more dovish policy. “A policy geared toward being all things to all people cannot endure for long,” wrote Joe Brusuelas, chief economist at RSM. “Either inflation via the trade channel proves transitory and the FOMC can cut rates, or the central bank will need to signal to market participants and the White House that rates are going to remain on hold, with the possibility of a rate hike.”
For now, the economy gives the Fed some room to wait and see. Unemployment remains low at 4.2%, real wages are rising, and recent data suggest consumer demand and business investment remain resilient. Powell called it a “solid economy,” and one that allows policymakers to absorb new information before making a move.
Inflation expectations are well-anchored for now, but Powell acknowledged that confidence isn’t synonymous with certainty. “We have to be humble,” he said, referring to forecasting the pass-through of tariffs. If inflation fails to materialize and the Fed continues holding on the basis of a forecast that never arrives, pressure to pivot more decisively could build quickly.
For now the Fed is standing still. The pause holds, but only just.
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