The Federal Reserve is in a bind this year. The Fed’s mission is to use the Fed Funds Rate to maintain low unemployment and inflation, two often competing goals.
When the Fed raises interest rates, it lowers inflation but increases unemployment. When it cuts rates, unemployment falls, but inflation rises.
By its nature, the Fed’s job is hard. This year, Fed Chairman Jerome Powell has it particularly tough.
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The jobs market has weakened, suggesting rate cuts, but inflation has proven sticky, and President Trump’s newly enacted tariffs could cause inflation to drop. If the Fed reduces rates, it risks fanning inflation flames. If it doesn’t, it risks surging unemployment.
This dynamic makes every interest rate decision a crapshoot, including this week, when the Federal Reserve’s Open Market Committee (FOMC) will decide on rates on June 18.
U.S. Federal Reserve Chairman Jerome Powell will likely hold interest rates steady on June 18.
Image source: Watson/Getty Images
Sorry, the Fed is very unlikely to embrace interest rate cuts this week
Anything is possible, but the Federal Reserve usually doesn’t like to surprise the markets, and the markets aren’t overly optimistic about the chances that rates are heading lower.
“Currently, Fed Funds Futures trading in Chicago are pricing in close to a 100% probability for no change to be made to monetary policy at this meeting,” said veteran Wall Street analyst Stephen Guilfoyle on TheStreet Pro.
Related: CPI inflation report resets interest rate cut bets
The CME’s closely-watched FedWatch tool measures odds of changes to interest rates based on futures trading.
The measure predicts a 99.9% chance that the Fed will hold rates steady this week at its 4.25% to 4.50% range.
That’s not great news for those in the cut-rates-now camp, including President Donald Trump. Trump has been beating the rate-cut drum loudly for months, threatening to remove Chairman Powell from his job while simultaneously referring to him as “Mr. Too Late” and a “numbskull” over his decisions to hold interest rates steady.
Rate cuts may still be coming in 2025
While the chances for an interest rate cut are slim this week, there’s still a chance that interest rates fall this year.
The Fed has said it will make its decision without political influence, relying solely on the data to justify its monetary policy.
Related: Fed interest rate decision looms as battle over cuts takes surprising turn
If jobs data continues to worsen and inflation doesn’t move substantially higher, Powell & Company could cut rates as soon as September.
The unemployment rate has climbed to 4.2% from 3.4% in 2023, and according to Challenger, Gray, & Christmas, over 696,000 workers have been laid off in 2025 through May, up 80% year over year.
Meanwhile, while the Personal Consumption Expenditure (PCE) core inflation rate is above the Fed’s 2% target, its current 2.5% pace isn’t terrible, and is lower than the rates of 2.7% to 2.9% reported when the Fed cut interest rates last September, November, and December.
While the CME’s FedWatch tool only puts odds of rates falling to a 4% to 4.25% range at the FOMC meeting in July at 16.5%, it shows a better than 65% chance that rates will be at that level or lower in September.
The likelihood that interest rates will remain where they are today in December is less than 7%.
Still, not everyone is convinced that we’ll get rate cuts this year. Bank of America, for example, expects the Fed to sit on its hands, keeping rates unchanged, throughout 2025 before cutting rates in 2026.
Related: Bank of America unveils surprising Fed interest rate forecast for 2026
