Continued Risk to Both Sides of the Dual Mandate

by Antulio N. Bomfim of Northern Trust, 6/27/25

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The Federal Open Market Committee’s (FOMC) decision Wednesday to leave the target range for the federal funds rate unchanged was widely anticipated. Market participants were keenly focused on any changes in the tone of Chair Powell’s press conference, as well as an updated Summary of Economic Projections (SEP), particularly the so-called ‘dot plot’. While a lot has transpired since the May FOMC meeting — including Moody’s downgrading of U.S. sovereign debt, various geopolitical and trade policy developments — the Committee’s stance on monetary policy hasn’t changed much. We, again, took the main message from Wednesday's meeting to be that, while uncertainty around the near-term path for the economy remains elevated — as are the risks to both sides of the FOMC’s dual mandate — the Committee still views its monetary policy as well positioned to wait for further clarity on the direction of the economy.

The post-meeting policy statement was little changed overall, but did clarify that, “Uncertainty about the economic outlook has diminished but remains elevated1 (our emphasis). The latest SEP continued to show the median participant expecting the equivalent of two 25-basis point (bp) cuts by the end of 2025, but by a narrower margin than in the previous dot-plot (March): Nine participants see only one cut or no cut this year as appropriate, one more than in March. The median projections for both 2026 (3.625%) and 2027 (3.375%) were both 25-bps higher relative to March, leaving the end-2027 dot even further above the long-term dot, which held steady at 3%.

The Chair’s press conference opened with prepared remarks that mostly repeated the language from the May press conference. The Committee believes that “the current stance of monetary policy leaves it well positioned to respond in a timely way to potential economic developments.”2 On the impact of trade policy, Powell posited that policymakers, “feel like [they’re] going to learn a great deal more over the summer on tariffs.”3 While at the same time saying, “the economy seems to be in solid shape … [and] the labor market is not crying out for a rate cut.”4 When asked about why they didn’t move policy towards a more neutral policy stance Wednesday, given elevated uncertainty, Powell countered that they, “have to be forward looking …”5 and take into account widely held expectations for inflation to increase in coming months. The Chair summarized future inflation passthroughs as, “very hard to predict … so that’s why [they] need to see some actual data to make better decisions…in the meantime [the Committee] can do that because the economy remains in solid condition.”6

Yields on U.S. Treasuries were little changed following Wednesday's FOMC statement and the Chair’s press conference, while equity markets gave back earlier gains. The futures-implied number of further rate cuts over the next twelve months was also little changed and remained at three to four 25-bp cuts.