Powell warns tariff impact may surface soon as Fed keeps rates unchanged amid economic uncertainty.

Rates Unchanged as Fed Emphasizes Watching Inflation

In the early hours of June 19th Beijing time, the Federal Open Market Committee (FOMC) unanimously agreed to maintain the current interest rate range of 4.25%-4.50% and continue the balance sheet reduction plan. Despite pressure from the Trump administration to cut rates, the Fed maintained its independence, insisting on "waiting for more data" to respond to the complex macro environment.

Chairman Powell stated at a post-meeting press conference that although the economy is resilient, it remains full of uncertainties, with short-term inflation pressures rising. "We have a complete ability to observe further developments before taking action."

Inflation Expectations Revised Upward, Tariff Effects Gradually Emerge

The latest quarterly economic forecasts show that the core PCE for 2025 has been revised from 2.8% to 3.1%, and the overall PCE has been revised up to 3.0%. Powell specifically noted, "Tariffs are pushing short-term inflation expectations higher, but the real impact has not yet fully reached consumers and is expected to become more apparent in the coming months."

He emphasized that supply chains take time, "Retail goods are often imported months in advance, so there is a lag in price impact."

Economic Growth Forecast Lowered, Job Market Challenges Intensify

Although the current unemployment rate remains at 4.1%, the FOMC has lowered its GDP growth forecast for 2024 to 1.4% and revised the 2026 forecast down to 1.6%. Additionally, unemployment rate estimates for the next two years have been raised to 4.5%, indicating that the labor market is cooling down.

Powell believes that "Although the labor market is cooling, it remains healthy. New technologies like AI are creating new jobs but also bringing structural changes."

Two Rate Cuts Expected This Year, Slowdown of Easing Next Year

According to the dot plot, two rate cuts are still expected this year, with the 2025 median rate at 3.9%, unchanged from the March forecast. The 2026 expected rate is slightly lowered to 3.6%, indicating a more cautious policy stance.

Notably, the number of members supporting not cutting rates increased to eight, reflecting that some officials remain vigilant about inflation risks. Meanwhile, the dot plot shows the terminal rate for 2027 has been raised to 3.1%, indicating upward risks in the long-term rate path.

Middle East Situation and Geopolitical Risks Draw Attention

When asked about the external risks posed by the conflict between Iran and Israel, Powell stated that if geopolitical tensions drive up energy prices, it will further disrupt the inflation path. "While energy shocks are usually short-term, we also need to assess whether they translate into long-term cost increases."

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