Your wallet is swooning.
So are those hopes of lower mortgage payments and higher returns on your retirement savings.
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That’s because a Federal Reserve Board official flipped the script on interest rate cuts today.
Related: Fed’s Powell sent a blunt message on interest rates this week
The unexpected move comes less than 48 hours after the Fed issued a “wait-and-see” hold to keep interest rates steady in June for the sixth month in a row.
Christopher Waller, governor of the US Federal Reserve, during a Fed Listens event in Washington, DC, US, on Friday, March 22, 2024. A trio of central bank decisions this week sent a clear message to markets that officials are preparing to loosen monetary policy, reigniting investor appetite for risk. Photographer: Al Drago/Bloomberg via Getty Images
Fed interest rate decision reset 2025 forecast
The central bank opted to keep the Federal Funds Rate at 4.25%-4.50% at its June meeting this week.
Fed Chair Jerome Powell said the expected risk of tariff inflation on the economy, while likely short-term, led to the “wait-and-see” decision.
President Donald Trump’s proposed tariffs – essentially an external sales tax to U.S. trading partners that you and I pay one way or another – face a July 9 deadline.
Related: Forget tariffs, Fed interest rate cuts may hinge on another problem
The overall economy is “solid,’’ but the uncertainty over tariff inflation is driven by the lagging impact of the tariffs on prices for manufacturers, retailers and consumers, Powell said.
The Fed’s dual mandate: prudent monetary policy that keeps prices and jobs relatively low to avoid plunging the U.S. economy into a recession or worse.
Both the May Consumer Price Index and jobs reports came in cooler than economists expected.
The Federal Open Meeting Committee controls the Federal Funds Rate, which banks charge each other overnight to borrow money.
The funds rate is tied to the cost of borrowing money for consumers, investors and businesses.
Then May housing starts (down 9.8%) and retail spending (down 9 %) came in with surprise dips, possible indicators of the aforementioned tariff inflation.
The FOMC said that, on July 19, it would keep the Federal Funds Rate at 4.25% to 4.50% for June.
Data over the next few months will indicate if the Fed will decide on two or fewer rate cuts in 2025, portfolio manager Chris Versace said in a TheStreet Pro post after the FOMC released its quarterly “dot plot.”
The Fed continues “to telegraph that two 25-basis point rate cuts remain on the table for this year,’’ Versace wrote.
Based on pre-tariff data, the last quarterly dot plot in March projected two 0.25-percentage-point rate cuts this year, two more 0.25 points in 2026, and one 0.25 point in 2027.
Fed and market watchers forecast the next probable rate cut could appear at the September FOMC meeting.
Fed’s Wallen issues stunning interest rate message
Fed Governor Christopher Waller blasted the dots out of that plot today.
Economic projections indicate a cut could come as early as next month, Waller said in a CNBC interview.
More Federal Reserve:
- Fed interest rate cut decision resets forecasts for the rest of this year
- Federal Reserve prepares strong message on long-term interest rates
- Fed official revamps interest-rate cut forecast for this year
“We can do this as early as July,’’ Waller said, adding that the current economic data “has been fine.”
He dismissed the impact of tariff inflation: “I don’t think it’s going to be very big.”
If tariff inflation does prove to rattle the jobs market, Waller said the Fed could pause the process.
TheStreet Pro’s Versace called Waller’s remarks “fascinating.”
This was sooner than the market expected in September, Versace said in a video after Waller’s remarks.
The Fed last cut the Federal Funds Rate in December 2024. It meets again July 29-30, 2025.Â
Related: Fed official revamps interest-rate cut forecast for rest of this year