Fed Keeps 2 Cuts in 2025, but Dumps 1 Cut in 2026 on Inflation

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Fed Keeps 2 Cuts in 2025, but Dumps 1 Cut in 2026 on Inflation

June 18, 2025

The updated Fed dot plot sent a slightly dovish signal with the median participant still penciling in two 25-basis-point cuts for 2025, unchanged from the March projections. However, higher for longer inflation projections resulted in one fewer cuts in 2026.

Trusted Insights for What’s Ahead^®

The updated Summary of Economic Projections (SEP) showed the Fed expects tariffs to push inflation significantly higher in H2 relative to the current pace. Simultaneously, the Fed further downgraded their forecast for growth and raised their projection for the unemployment rate (see Figures 1-3 below).
During his press conference, Chair Powell indicated the Fed still has a cutting bias. The Fed is just waiting for some clarity on how tariffs will affect the outlook. We expect the data over the next three months will provide enough evidence for the Fed to be able to have a more decisive view by the time of the September meeting.
In our view, the negative impact on growth will likely overwhelm that of higher inflation, resulting in policy rate cuts in H2 2025. We still expect two rate cuts this year – in September and December.
The ultimate Fed action will depe

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Author

Yelena Shulyatyeva

Senior US Economist

Read BioYelena Shulyatyeva

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