During the Federal Open Market Committee (FOMC) meeting held last night, the U.S. Federal Reserve (Fed) kept the benchmark interest rate on hold at 4.5% as expected. However, reflecting the impact of the tariff imposed by Trump, it revised down its economic growth forecast for this year from 1.7% to 1.4%. The forecasts for the unemployment rate and core personal consumption expenditures (PCE) were adjusted upwards, leading to a cautious change in economic and price outlook.
According to the dot plot for 2025, the Fed projected a median benchmark interest rate of 3.875%, maintaining its forecast for two rate cuts within the year. However, with one additional commissioner marking above the median compared to the March meeting, a somewhat hawkish (tightening) atmosphere was detected. The dot plot is a chart that shows how Fed commissioners expect future interest rate levels.
Kim Myung-sil, a researcher at iM Securities, said, 'The extremely stringent tariff policy has led to a persistently high economic uncertainty, which negatively affected growth and unemployment rate forecasts,' adding, 'The expression that inflation is "still somewhat high" has been maintained, and the wording regarding future interest rate adjustments has repeated the existing position of "considering the magnitude and timing."' This illustrates that the Fed is still taking a cautious approach between its dual mandate (price stability and maximum employment).
iM Securities projected that since the Fed is leaving open the possibility of two rate cuts this year, the first cut is likely to occur in September. The grounds for this include: ▲ the existence of differing views on monetary policy within the Fed, ▲ the Fed facing a dual challenge of managing to suppress expected inflation while also addressing employment slowdown, ▲ the actual imposition of tariffs beginning to show signs of dampening consumer demand, and ▲ recent rises in oil prices not directly leading to inflation.
Researcher Kim noted, 'If this situation continues, the burden on the economy will inevitably increase, and President Trump’s pressure on the Fed will intensify.' He added that 'the recent spike in oil prices following the Israel-Iran conflict has increased the possibility of stagflation (inflation with economic stagnation); however, considering that the U.S. has now become an oil exporter, the impact of high oil prices on inflation and GDP is not one-directional as it was in the past.'