The Fed leaves interest rates unchanged, maintaining a cautious stance amid growing economic and geopolitical uncertainties

The Federal Reserve held its benchmark interest rate steady on Wednesday, as widely anticipated. While officials reaffirmed expectations for rate cuts later this year, they signaled a slower pace due to elevated inflation risks and lingering uncertainty over the Trump administration’s proposed tariff plans.

Striking a more cautious tone, the Fed pulled back from earlier suggestions of imminent easing, reflecting a more guarded approach amid rising geopolitical tensions, inflationary pressure, and the potential economic impact of new trade measures.

Despite the Fed’s slightly hawkish shift, markets continue to price in two 25-basis-point rate cuts in 2025—one expected between September and October, and another in December.

In its updated economic projections, the Fed raised its inflation forecast for 2025 to 3%, up from 2.7% in June. At the same time, it trimmed its growth outlook, revising its 2025 GDP estimate down to 1.4% from 1.7% in March, signaling growing concern over the near-term economic trajectory.

This more subdued outlook, combined with escalating conflict in the Middle East and the risk of rising energy costs, overshadowed earlier market relief that followed May’s softer-than-expected core inflation reading.