The projections from June 2025 show changes to several key economic indicators compared to March. Seven members now believe there will be no rate cuts in 2025, up from four previously. This indicates a steady approach to policy. The median Fed funds rate is unchanged at 3.9% for 2025, with inflation expected to stay high because of tariffs. GDP growth for 2025 has been cut from a median forecast of 1.7% in March to 1.4% in June, a decrease of 0.3%. The median forecast for headline PCE inflation has risen by 0.3% to 3.0%, while core PCE inflation has also increased by 0.3% to 3.1%. Unemployment is expected to rise slightly from 4.4% in March to 4.5% in June. For 2026, GDP growth is predicted to decrease by 0.2% to 1.6%. The unemployment rate is expected to stay steady at 4.5%, up from 4.3% in the previous forecast. PCE inflation is projected to rise by 0.2% to 2.4%. By 2027, a slight increase in inflation is expected, with both core and headline inflation estimated at 2.1%, up from 2.0% in March. This data shows that expectations around rate cuts have decreased. More policymakers now see no adjustments for the next year, reflecting a cautious attitude due to ongoing inflation concerns, likely driven by changes in trade policy. Tariffs are increasing prices, especially on imported goods, making it harder to control inflation than originally thought. The change in sentiment from March to June is significant—it indicates that controlling inflation is now more important than worrying about growth, at least for now. The reduction in GDP forecasts is notable, with a 0.3% cut for 2025 and a smaller adjustment for 2026. This indicates that officials are starting to recognize the impact of tighter financial conditions and external pressures on consumer demand. A decrease in the median forecast shows that risks to growth are being taken more seriously. The slight rise in the unemployment forecast supports this view, suggesting slower hiring and lower demand for labor. For inflation, the increases in both headline and core PCE suggest we may face a longer period of rising prices. The consistent rise in service-related inflation indicates a persistence that affects other components. The increases of 0.3% reflect strong confidence among officials that any positive trends in lowering inflation are stalling or reversing. With the 2026 inflation forecast at 2.4%, it signals that getting back to the target of 2% will take time and may require more patience than previously expected. From a trading perspective, we should reevaluate risk premiums related to future rate changes. The shift from March to June indicates not just delays in cuts, but the risk of prolonged rates remaining near the peak. Pricing future rates assuming aggressive easing looks misaligned with these new projections. Volatility is unlikely to decrease soon, especially around CPI releases and labor market reports, which can quickly change sentiment. Powell’s team is showing they are more concerned about persistent price pressures than temporary drops in growth. This aligns with the increase in inflation expectations into 2027. These aren’t just fleeting changes; they represent a trend. For us, this trend supports investments that benefit from continued policy stability or minor tightening surprises rather than early easing. While some parts of the economic curve may remain stable, shorter-term rates will be more significant due to their sensitivity to incoming inflation data. We should pay close attention to cyclical indicators that have responded less to policy changes lately. If these indicators begin to show weakness, policymakers may reconsider their stance. However, for now, the sentiment seems to lean against easing. It’s about understanding that neutral rates will likely stay higher for longer, and cyclical weaknesses haven’t reached a critical point yet. Thus, risk strategies that anticipate sharp downward adjustments in terminal pricing are less appealing given the current outlook. Flexibility is important, but we align with positioning that reflects sustained price increases. Being patient is also key—reacting too strongly to single data points can be misleading. It’s better to stay focused on the overall trend suggested by this forecast: inflation remaining just above target, alongside slow but steady economic activity. As inflation continues to persist, the Fed won’t rely heavily on optimism, which is the lesson from the change in their expectations between March and June.

here to set up a live account on VT Markets now