The projections released in June 2025 show adjustments to several key economic indicators compared to March. Seven members now foresee no rate cut in 2025, an increase from four previously, suggesting steady policy. The median Fed funds rate remains unchanged at 3.9% for 2025, with expectations of inflation remaining elevated due to tariffs.
GDP growth for 2025 has been revised downward from a 1.7% median forecast in March to 1.4% in June, a drop of 0.3%. For inflation, the median forecast for headline PCE inflation has increased by 0.3% to 3.0%, and core PCE inflation is also up by 0.3% to 3.1%. Unemployment is expected to rise slightly from 4.4% projected in March to 4.5% in June.
Expectations For 2026
For 2026, GDP growth is expected to decrease by 0.2% to 1.6%. The unemployment rate is projected to remain stable at 4.5%, up from 4.3% in the earlier prediction. PCE inflation is forecasted to rise by 0.2% to 2.4%. By 2027, a slight increase in inflation is anticipated, with both core and headline inflation projected at 2.1%, up from 2.0% in March.
What this data effectively tells us is that expectations around rate cuts have been subdued, with a higher number of policymakers now seeing no adjustment at all next year. This reflects a more cautious stance in light of persistent inflation expectations, likely influenced by changing trade policy. With tariffs putting upward pressure on prices, particularly on goods with foreign inputs, inflation is proving harder to tame than initially thought. That shift in sentiment from March to June isn’t subtle — it’s a clear recalibration of priorities, where keeping inflation under control outweighs growth concerns, at least for now.
The downgrade in GDP forecasts stands out, with a 0.3% reduction for 2025 and a smaller revision for 2026. These aren’t adjustments made lightly. This suggests that officials are beginning to factor in the cost of tighter financial conditions and external pressures on consumer demand. When the median drops, even incrementally, it signals that downside risks to growth are viewed more concretely than before. The slightly elevated unemployment forecast reinforces that view — softer hiring, slower demand for labour, and an expectation that growth will not do any heavy lifting this time.
As for inflation, projected increases in both headline and core PCE indicate that we could be in for a longer period of above-target price growth. There’s also a clear nod here to the stickiness of services inflation, which tends to lag other components. Increases of 0.3% don’t happen by accident — those estimates imply strong confidence among officials that current disinflationary trends have stalled or reversed. And if the 2026 inflation projection now stands at 2.4%, that alone tells us that the path back to 2% will take time and may involve more patience on the policy front than previously priced in.
Trading Implications
Now, how should we respond to this from a trading standpoint? Risk premiums tied to future rate moves should be reassessed. If we consider the shift from March to June, we’re not just dealing with delayed cuts, but with the possibility of extended policy rates at or around terminal. Put simply, pricing forward curves with aggressive easing looks out of step with these projections. Volatility will likely not subside in the near term, especially around CPI releases and labour market reports, which are now the primary data sources that could shift sentiment again.
Powell’s colleagues have sent a signal that they’re more worried about embedded price pressures than short-term growth softness. That tallies with the upward shift in inflation expectations into 2027. These aren’t just temporary blips; they form a pattern. For us, that pattern reinforces a preference for trades that benefit from either policy stasis or mild tightening surprises rather than early loosening. Certain parts of the curve may remain anchored, but front-end rates will carry more weight for positioning due to their sensitivity to incoming inflation.
We should keep close attention on cyclical indicators that have been less sensitive to policy rates lately. If those start to show softness, there could be a reconsideration among policymakers, but until then, the bias seems tilted against easing. It’s not about trying to chase moves day by day, but about recognising that neutral is higher for longer, and cyclical weakness hasn’t crossed the necessary threshold yet. Therefore, risk setups invoking steep downward adjustment in terminal pricing are less compelling under current assumptions.
Flexibility matters, but directionally, we remain aligned with the positioning that reflects a persistent price path. There’s also merit in being patient here — overreacting to single data points has proven misleading. Better to stay grounded in the trend conveyed in this forecast: inflation sticking just above target, paired with slower but steady activity. When inflation drags, the Fed leans less on optimism. That’s the lesson from the shift between their own March and June expectations.
