The Federal Open Market Committee will hold another summit this week. By Thursday, June 18, the Committee will reveal the new (or old) interest rate decision to go into effect until July 30. So, what can investors expect from the Fed’s interest rate decision later in the week?
To sum it up, markets are nearly sure the current 4.25% – 4.50% interest rate will remain the same. But let’s go over why the Fed will likely keep rates unchanged yet again.
Inflation Uncertainty
Last week, we reported how consumer prices and consumer prices were both growing more slowly than anticipated. At first glance, that sounds like inflation is gradually decreasing—but yet—inflation concerns remain elevated.
While headline inflation is controlled, certain categories—such as housing, energy, and services—continue to see persistent price increases. The CPI data focused on urban consumers (CPI-U) shows that inflationary pressures remain uneven across different sectors.
While the overall CPI-U rose by 2.4% year-over-year, key categories are still seeing above-average price increases:
- Shelter costs climbed 0.6% month-over-month, continuing their steady rise.
- Food away from home increased 0.3%, reflecting ongoing restaurant price hikes.
- Electricity costs edged up 0.2%, adding further pressure to household budgets.
Now, energy and oil prices have been added to the list of possible concerns. The fact that Iran — which is responsible for 4% of the worldwide production of oil, as well as a major natural gas supplier — has become a geopolitical flashpoint is adding uncertainty to global energy markets.
Tariffs Still In Question
Under Powell’s leadership, the Fed has been adamant in not taking abrupt decisions amidst any type of uncertainty.
For instance, CPI data either came in as expected or better than expected from December 2024 until February 2025. And yet, the Fed refused to lower interest rates, likely assuming that the new Presidential administration would create uncertainty in economic policy.
These assumptions turned out to be truthful when looking at how Trump sought to reset the world trade balance, going after even some of the U.S.’s largest trade partners with tariffs far greater than they were in the last year.
Whether Trump’s Liberation Day tariffs were right or wrong is not up to us to decide. However, the fact that we don’t really know how easily products from places like China or even Europe will enter America keeps the Central Bank apprehensive.
The bond market has been very volatile this year, and this reflects investors’ lack of belief that borrowing costs will decrease.
Ultimately, the Fed doesn’t make decisions thinking about short-term inflation. The fact that Powell repeatedly claimed that he’d rather “wait-and-see” rather than take action leads us to believe that — while we see no inflationary trends right now — the Fed is more focused on long-term inflation risks and overall economic stability.
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