What Do the Fed and Chairman Jerome Powell’s Statements Mean? Is an Interest Rate Cut Coming? We’ve Summarized Everything Here

The Fed kept its policy rate unchanged at 4.25%-4.50%, as expected. This is the fourth consecutive meeting where interest rates remained unchanged.

However, the “dot plot” and economic projections that the markets were eagerly awaiting revealed that the expectations for an interest rate cut were gradually weakening.

The FED’s interest rate expectations for 2026 drew a more cautious picture compared to the previous period. While only 4 members thought that no interest rate cuts should be made this year in March, this number increased to 7 in June. On the other hand, 10 members expected at least two interest rate cuts in 2024, while 2 members predicted only one. While the expectation of two cuts for 2025 remained the same, the expectation for 2026 was reduced from two cuts to one.

While only 4 members argued in March that no interest rate cuts should be made this year, this number increased to 7 in the June meeting. On the other hand, 10 members foresee at least two interest rate cuts in 2025, while 2 members expect only one. For 2026, the expectation of an interest rate cut was reduced from two to one.

Ahead of the interest rate decision, President Donald Trump reiterated his harsh criticism of Fed Chairman Jerome Powell. Speaking to reporters at the White House, Trump said of Powell, “There is a very stupid person at the Fed.” Trump also stated that he wants interest rates to be cut aggressively by 100 to 250 basis points.

Trump’s “Liberation Day” tariffs, the largest of which he announced on April 2 and later suspended, raised the average tariff rate in the US to the highest level since the 1930s. It is being commented that this situation has begun to directly affect the FED’s decisions.

Fed officials want to see a softer labor market or clear evidence that tariffs have limited their impact on prices before they can cut rates. But the current data is mixed. The slowdown in housing suggests that higher interest rates are weighing on the economy, while unemployment remains low. But the number of people receiving long-term unemployment benefits is at a three-year high and hiring figures are being revised downward.

According to economist Neil Dutta of Renaissance Macro, inflation data for May came in lower than expected. “There were tariffs in May but inflation was weak. What does that tell us? Companies may not be passing on higher costs to consumers. That could lead to narrow margins and layoffs,” he said.

Another reason the Fed is cautious in its interest rate policy is that financial conditions are still relatively loose. The spread between corporate bond yields and Treasury bonds is low, credit supply is strong, and stock markets are near historic highs. The jump in stock prices, especially after some companies announced stablecoin-based payment systems, shows that there is still serious speculative capital in the market.

This situation allows the Fed to avoid the risk of an early rate cut that could cause inflation to climb again. And as economist David Wilcox has noted, confidence in the Fed has been damaged after one of the biggest inflation shocks in recent years, making its control of inflation expectations more fragile.

The FED’s decision and projections today show that the institution does not want to rush into interest rate cuts and wants to see more data. The FED, torn between both fighting inflation and preventing a slowdown in the economy, will most likely continue its cautious policy until the fall.

*This is not investment advice.