Key takeaways

  • The U.S. Federal Reserve (Fed) maintained its policy interest rate range of 4.25%-4.50% as expected, with the intent of bringing inflation closer to its 2% target.

  • Updated Fed projections suggest a somewhat downgraded 2025 economic outlook versus March, with the median growth projection declining slightly and inflation and unemployment expectations increasing.

  • Investors now anticipate two rate cuts in 2025; estimates fluctuated from one to four cuts year-to-date amid tariff uncertainty.

The Federal Reserve held its target federal funds interest rate in a range of 4.25%-4.50% following its regularly scheduled two-day meeting, a widely anticipated outcome. The Fed has held rates steady since previously cutting rates by a total of 1% in 2024’s second half. The updated official statement noted, “Uncertainty about the economic outlook has diminished but remains elevated.” Meanwhile, investors anticipate two 0.25% rate cuts this year, in line with updated median Fed projections. The Fed has held rates steady so far this year due to resilient economic data, lingering above-target inflation and tariff uncertainty.

Consensus economist and Fed projections downgraded the 2025 economic growth outlook since the announcement of planned tariffs from the Trump Administration, while increasing inflation expectations. However, Fed Chairman Jerome Powell said during the press conference that the Fed remains in a good position to exercise patience before changing policy rates, citing a still-solid U.S. economy and only narrow signs of higher prices in a subset of goods.

The Fed updated its Summary of Economic Projections (SEP), a release detailing its forward views on growth, inflation, employment and interest rates, which mirrored broader economist forecasts for a somewhat diminished outlook into year-end. Fed members’ median 2025 economic growth projections declined to 1.4% from 1.7% in March while core inflation projections increased to 3.1% from 2.8% and unemployment estimates increased slightly to 4.5% from 4.4%.

Aggressive policy tightening in the form of rate hikes between early 2022 to mid-2023 helped drive the Core Personal Consumption Expenditures Price Index (Core PCE), the Fed’s preferred inflation gauge, from a peak above 5.5% year-over-year in 2022 to 2.5% in April. The Fed targets inflation near 2%.

The Fed slowed the monthly reduction in its $6.4 trillion bond holdings earlier this year. Its bond holdings peaked at $8.5 trillion in 2022 before they allowed bonds to mature without replacement up to $60 billion per month, then shrinking the pace of bond “runoff” in April to $40 billion per month. Slower or no balance sheet runoff improves market liquidity relative to faster runoff. Liquidity refers to the amount of money readily available to buy goods, services and financial assets in an economy. Strong liquidity can also provide cushion against unforeseen financial market shocks, and liquidity measures remain constructive for now.

Chart shows the market’s expectation for interest rates from June 2025 through June 2030 compared to Fed guidance.
Source: U.S. Bank Asset Management Group Research, Federal Reserve, Bloomberg, 6/18/2025.

Stock returns were mixed Wednesday, with large stocks, represented by the S&P 500, falling 0.03% while small stocks represented by the Russell 2000 Index rising 0.52%. Treasury bond yields rose slightly. Ten-year Treasury bond yields ended the session unchanged at 4.39%, while two-year Treasury yields fell 0.01% to 3.94%.

Monetary policy, defined as central bank target interest rates, remains restrictive in most geographies around the globe. However, policy is easier overall, with central bank rate cuts exceeding hikes starting in the fourth quarter of 2023 and continuing through the current quarter. The Fed remains an outlier; as several other major central banks have cut rates multiple times this year, including the Bank of England, European Central Bank, Bank of Canada and the Reserve Bank of Australia.

Chart shows interest rate increases made by global central banks minus their cuts between April 1, 2006, and June 18, 2025.
Source: U.S. Bank Asset Management Group Research, FactSet; 4/1/2006-6/18/2025.

We retain a glass half full outlook for diversified portfolios, acknowledging the contrast between solid recent economic data versus potential negative impacts from tariffs. While consumer and business surveys and economist forecasts suggest growth will decelerate and inflation will accelerate into year-end, these fears have not yet manifested in broader economic readings. We see evidence of solid current economic activity in strong corporate earnings releases, stable hiring data and robust aggregate consumer activity based on high frequency indicators such as consumer spending, credit and debit card swipe data, restaurant bookings and TSA security checkpoint activity at airports. We will keep you informed of our views as new data becomes available and as we update our assessment of market conditions.

As always, we value your trust and are here to help in any way we can. Please do not hesitate to let us know if we can help address your unique financial situation or be of assistance.

View PDF version

 

This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. The Personal Consumption Expenditures (PCE) Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. It is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

Explore more

Analysis: Assessing inflation’s impact

Are tariffs contributing to inflation in the U.S. economy?

Access a broad range of investments, vetted by a team of experts.

We can partner with you to design an investment strategy that aligns with your goals and is able to weather all types of market cycles.

Disclosures

Start of disclosure content

Investment and insurance products and services including annuities are:
Not a deposit • Not FDIC insured • May lose value • Not bank guaranteed • Not insured by any federal government agency.

U.S. Wealth Management – U.S. Bank is a marketing logo for U.S. Bank.

Start of disclosure content

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank does not offer insurance products but may refer you to an affiliated or third party insurance provider.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.

Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC. Mortgage, Home Equity and Credit products are offered by U.S. Bank National Association. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice.