Benchmark Rate Held at 4.25-4.5% for Fourth Consecutive Time
Growth Forecast for This Year Lowered to 1.4%... Inflation Raised to 3.1%
Stagflation Concerns Intensify
Fed Maintains Two Rate Cuts for This Year... Only One Cut Projected for Next Two Years
The US Federal Reserve (Fed) has kept its benchmark interest rate unchanged for the fourth consecutive time, as expected. While it revised its economic growth forecast for this year downward and raised its inflation outlook, the Fed warned that concerns over stagflation?rising prices amid economic stagnation?are growing in the wake of aggressive tariff policies. Nevertheless, the Fed maintained its projection of two rate cuts this year, in line with previous forecasts.
On June 18 (local time), following the regular meeting of the Federal Open Market Committee (FOMC), the Fed announced in its policy statement that it had unanimously decided to keep the federal funds rate steady at 4.25?4.5% per annum. This marks the fourth consecutive hold, following similar decisions in January, March, and May. As a result, the interest rate gap between South Korea and the United States remains at 2 percentage points at the upper bound.
In its policy statement, the Fed assessed that "economic activity continues to expand at a solid pace," and noted that "the unemployment rate remains low and inflation is somewhat elevated." However, the phrase from the May statement, "uncertainty about the economic outlook is increasing," was revised in this statement to "uncertainty about the economic outlook has diminished but remains high," indicating that some concerns have eased. This is believed to be related to the US initiating trade negotiations with major trading partners after postponing the implementation of reciprocal tariffs for 90 days.
Regarding the interest rate outlook, the Fed maintained the possibility of two rate cuts this year. In the newly released dot plot, the median forecast for the federal funds rate at the end of this year was presented as 3.9%, unchanged from before. This suggests that the current rate of 4.25?4.5% could be lowered by 0.25 percentage points twice. However, among the 19 FOMC members, 7 supported holding rates steady this year, up from 4 in March.
The Fed projected the median federal funds rate at the end of 2026 and 2027 to be 3.6% and 3.4%, respectively. These figures are higher than the 3.4% and 3.1% projected in March, suggesting that there may be only one rate cut each in the next two years.
Although the Fed maintained its outlook for rate cuts this year, the adjustments to its forecasts for subsequent years reflect heightened concerns about stagflation in the Summary of Economic Projections (SEP) released alongside the decision. The Fed lowered its forecast for US gross domestic product (GDP) growth this year from 1.7% to 1.4%, and cut its 2026 projection by 0.2 percentage points to 1.6%. The 2027 growth forecast was kept at 1.8%. The unemployment rate projection for the end of this year was raised from 4.4% to 4.5%.
The Fed raised its inflation forecast, based on the core personal consumption expenditures (PCE) price index?which it prioritizes?from 2.8% to 3.1% for this year. The projections for 2026 and 2027 were also increased by 0.2 percentage points and 0.1 percentage points, to 2.4% and 2.1%, respectively.
This indicates that, amid persistent high inflation and mounting concerns about an economic downturn due to President Donald Trump's tariff policies, the Fed is placing greater emphasis on the risks of slowing economic growth and rising prices.
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