Fed Holds Rates Steady, Flags Stagflation Risk as Tariffs Fuel Inflation Fears

The Federal Reserve kept interest rates unchanged for a fourth consecutive meeting on Wednesday, while issuing a more cautious economic outlook that suggests stagflation risks are now squarely on the table. The FOMC maintained the federal funds rate at 4.25% to 4.50%, as the central bank navigates a complex environment shaped by rising inflation and slowing growth.

Fed's Rate Cut Path Narrows

While the Fed still projects two rate cuts in 2025, its longer-term rate trajectory has turned less dovish:

• 2026 benchmark rate forecast revised up to 3.6% (from 3.4%).

• 2027 benchmark rate now expected at 3.4% (vs 3.1% in March).

Fed Chair Jerome Powell emphasized that these projections are not set in stone. “Everyone would agree that they're all going to be data dependent,” he noted.

Rising Inflation, Slowing Growth: A Classic Stagflation Setup?

The Fed raised its core PCE inflation forecast to:

• 3.1% for 2025 (up from 2.8%)

• 2.4% in 2026 (up from 2.2%)

• 2.1% in 2027 (vs prior 2%)

These upward revisions suggest policymakers are preparing for stickier inflation, driven in part by:

• Tariffs imposed under President Donald Trump's trade policy.

• A crackdown on immigration, which could strain labor supply and push wages higher.

Track Upcoming Economic Data for Insight

As the Fed turns increasingly data-dependent, market participants will need to monitor high-impact economic releases. Use the Economics Calendar to stay ahead of inflation prints, jobs data, and Fed commentary.

For investors focused on inflation-sensitive assets and commodities, the Commodities endpoint offers up-to-date pricing and sector impacts driven by macroeconomic shifts.