The Federal Reserve (Fed) left its target range for short-term interest rates unchanged for a second consecutive meeting. The Fed recognized a greater level of uncertainty around its economic outlook and individual projections by the Committee’s voters reflected a wider range of projected outcomes for growth, inflation, and interest rates. 

Current Conditions – Current economic data suggests the economy is in a “pretty solid” position with unemployment at 4.1% and job creation at a healthy level according to Chair Powell. Recent surveys of households and businesses reveal a higher degree of uncertainty and concerns about downside risk. Inflation remains above the Fed’s long-term target, but recent CPI data showed some improvement at the margin.

Forward Guidance – The Fed made downward revisions to its outlook for growth through the end of 2027 and raised its projection for core inflation through the end of 2025. According to Powell, trade policy is already impacting the economy and is reflected in the Committee’s projections. The median Fed voter continues to expect 2 additional rate cuts will be required by the end of this year despite the near-term increase in expected inflation. The Fed took a similar approach during the period of rising tariffs during the first Trump administration. 

Policy/Market Reaction – Markets viewed the release positively. Stocks, bonds, and the Dollar were all positive. Markets may be relieved that the Fed is not over-reacting to the one-time impact tariffs could have on inflation. The Fed will slow the pace of runoff in its holdings of Treasuries and mortgage-backed securities as it has been signaling for several months.    

Gary Pzegeo, CFA, is co-chief investment officer of CIBC Private Wealth. His responsibilities include chairing the Asset Allocation Committee and overseeing the investment administration, portfolio oversight, and fixed income and equity trading functions.