by Calculated Risk on 7/27/2025 09:01:00 AM
Most analysts expect no change to FOMC policy at the meeting this week, keeping the target range at 4 1/4 to 4 1/2 percent. Market participants currently expect the FOMC to cut the Fed Funds rate 25bp in September, with a second rate cut in December.
We do not expect any policy changes at the July Fed meeting. Most FOMC participants
likely view this meeting as a placeholder. The balance of risks remains the same as in
June: to the upside on inflation and to the downside on the labor market. The Fed will
have a lot more information on how these risks have evolved by the September meeting. …August’s Jackson Hole Symposium further reduces the urgency to guide markets next
week. The Fed will have an additional month’s worth of data by then. With the benefit of
hindsight, it is clear that Powell used his Jackson Hole speech last year to signal the
50bp cut in September. This year, Powell will most likely be speaking on the morning of
August 22. Although the focus will be on the framework review, we see a strong chance
that Powell will also provide a signal on the near-term policy trajectory.
emphasis added
Since the last projections were released, economic growth has been below expectations, the unemployment rate and inflation close to expectations.
The BEA’s estimate for Q1 GDP showed real growth at -0.5% annualized. Most estimates for Q2 GDP, are around 2.5% (as distortions in Q1 reverse). That would put the first half real growth at 1.0% annualized, and it is likely growth will also be slow the 2nd half of 2025.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Jun 2025 | 1.2 to 1.5 | 1.5 to 1.8 | 1.7 to 2.0 | |
| Mar 2025 | 1.5 to 1.9 | 1.6 to 1.9 | 1.6 to 2.0 | |
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 4.1% in June. The unemployment rate will likely increase later this year.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Jun 2025 | 4.4 to 4.5 | 4.3 to 4.6 | 4.2 to 4.6 | |
| Mar 2025 | 4.3 to 4.4 | 4.2 to 4.5 | 4.1 to 4.4 | |
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of May 2025, PCE inflation increased 2.3% year-over-year (YoY), up from 2.2% YoY in April. Early estimate is PCE inflation will increase to 2.6% YoY in June. There will likely be some further increases in the 2nd half of 2025, but the forecast range is probably reasonable.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Jun 2025 | 2.8 to 3.2 | 2.3-2.6 | 2.0 to 2.2 | |
| Mar 2025 | 2.6 to 2.9 | 2.1 to 2.3 | 2.0 to 2.1 | |
PCE core inflation increased 2.7% YoY in May, up from 2.6% YoY in April. There will likely be further increase in core PCE inflation.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2025 | 2026 | 2027 | |
| Jun 2025 | 2.9 to 3.4 | 2.3-2.6 | 2.0 to 2.2 | |
| Mar 2025 | 2.7 to 3.0 | 2.1 to 2.4 | 2.0 to 2.1 | |
