Notes indicated two Members were ready to cut as early as next meeting and treasury liquidity was improving. Next meeting July 29 and 30, 2025.
Top Key Takeaways:
Policy Stance Maintained, Future Rate Cuts Possible: The FOMC held the federal funds rate at 4.25 to 4.5 percent and continued balance sheet reduction. Consensus was for two 25 bps cuts in 2025, a couple were open to a cut at the next meeting if data developed in line with their expectations4. Inflation Elevated, Tariff Uncertainty Persists: Inflation remains somewhat elevated , despite having eased since its 2022 peak. Increased tariffs are expected to put upward pressure on prices , with significant uncertainty regarding their timing, size, and duration. Longer-term inflation expectations are well anchored , but shorter-term expectations remain elevated. Solid but Moderating Economic Activity, Downside Risks to Growth/Employment: Economic activity continues at a solid pace , and the labor market remains strong with low unemployment. However, some participants noted marginal signs of a slowing labor market. Staff still judged risks around GDP growth and employment as skewed to the downside, though less so than previously. Treasury Liquidity Improved, Foreign Holdings of U.S. Assets Similar, Despite Weakening Dollar. Section Summaries:
Review of Monetary Policy Strategy, Tools, and Communications: The Committee continued its review of the Federal Reserve's monetary policy framework, focusing on assessing and communicating risks and uncertainty to the economic outlook. Participants emphasized the need for a robust policy strategy given pervasive uncertainty and discussed enhancing communication tools like the Summary of Economic Projections (SEP). This review is expected to conclude by late summer. Developments in Financial Markets and Open Market Operations: Treasury yields increased, liquidity in Treasury securities improved. The broad trade-weighted dollar index fell further. Unsecured overnight rates remained stable , and repo rates were softer relative to the previous intermeeting period. Since January, the Treasury General Account (TGA) had declined nearly $420 billion, ON RRP balances had increased about $75 billion, and reserves had increased $150 billion. The SOMA portfolio had fallen almost $24 trillion since June 2022 , and runoff is expected to end in February of next year, with an expected size of $6.2 trillion, or about 20 percent of GDP. The Desk will add regular morning standing repo facility (SRF) operations starting June 26. The Committee unanimously ratified the Desk's domestic transactions. Staff Review of the Economic Situation: Consumer price inflation remained somewhat elevated , but total PCE price inflation was estimated at 2.3 percent in May, and core PCE inflation at 2.6 percent, both lower than at the beginning of the year. Labor market conditions were solid , with the unemployment rate at 4.2 percent in May , and nonfarm payrolls increasing solidly. Real GDP was expanding at a solid pace in the second quarter , after a slight decline in the previous quarter. International trade remained volatile due to tariffs , but recent indicators suggested a rebound following a 90-day reduction in bilateral tariffs between the U.S. and China in mid-May. Economic growth abroad had picked up but showed signs of slowing. Many foreign central banks eased policy. Staff Review of the Financial Situation: The market-implied path of the federal funds rate increased , and broad equity price indexes rose markedly, consistent with improving risk sentiment from trade developments. Borrowing costs for businesses, households, and municipalities generally edged down but remained elevated. Credit remained readily accessible for public and large private corporations but was tighter for low-credit-score mortgage borrowers despite easing slightly in May. Delinquency rates remained elevated in some sectors, including small business loans , CMBS , and certain consumer loan categories like student loans. Staff Economic Outlook: The staff's projection for real GDP growth for this year through 2027 was higher than the May forecast, primarily due to reduced assumptions about effective tariff rates. Labor market conditions were not expected to weaken as much as previously projected. The inflation projection was lower than in May , with inflation projected to decline to 2 percent by 2027. Uncertainty around the economic outlook remained elevated , but the risk of recession was viewed as less than in the previous forecast. Risks around the inflation forecast remained skewed to the upside. Participants' Views on Current Conditions and the Economic Outlook: Participants agreed that economic growth was solid , the unemployment rate low , and inflation somewhat elevated. Uncertainty had diminished but remained elevated , with downside risks to employment and economic activity and upside risks to inflation. Many noted that tariffs would likely create upward pressure on prices , with considerable uncertainty about the effects. While longer-term inflation expectations were anchored , shorter-term expectations were elevated. Labor market conditions remained solid , but several participants observed a slowing in both hiring and layoffs, and some contacts reported pausing hiring decisions. Most expected a gradual softening of conditions. Economic activity continued to grow at a solid pace , though a majority expected the pace to moderate. Participants unanimously maintained the federal funds rate target. Most assessed some rate reduction this year would be appropriate , while some saw no reductions as likely, given inflation concerns and economic resilience. Risks of higher inflation and weaker labor market conditions had diminished but remained elevated. Committee Policy Actions: Members agreed on the solid economic activity , low unemployment , and elevated inflation. They also noted that uncertainty had diminished but remained elevated. The Committee decided to maintain the target range for the federal funds rate at 4.25 to 4.5 percent and continue reducing securities holdings. They committed to carefully assess incoming data and risks for future adjustments to the policy rate. The vote for these actions was unanimous. 
