As expected, the Fed decided to maintain the federal funds rate in a range between 4.25 and 4.50%. However, the central bank also expects higher inflation in 2025.
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The core personal consumer expenditures (PCE) index is the Fed’s preferred gauge of inflation. It strips out food and energy prices from regular PCE due to their volatility. PCE tracks the prices that consumers pay for goods and services.
The Fed now expects core PCE of 3.1% in 2025, up from its prior estimate of 2.8% in March. For 2026, it expects core PCE of 2.4%, up from 2.2%. For 2027, the estimate was raised to 2.1% from 2.0%.
Fed Lowers 2025 GDP Estimate
On top of that, the Fed also dropped its 2025 gross domestic product (GDP) estimate to 1.4% from 1.7%. It added that economic uncertainty has decreased but still remains an issue.
The S&P 500 (SPX) hasn’t reacted to the inflation estimate increase and remains where it was before the estimate was released. However, the odds of a rate cut during the September Federal Open Market Committee (FOMC) meeting have jumped to 68.1% compared to 62.2% yesterday in a supporting move for the market.
Keep track of the federal funds rate with TipRanks’ Economic Indicators Dashboard.
