Federal Reserve officials are still, somewhat heroically, pencilling in two interest rate cuts in 2025. But their latest projections reveal an increasingly fragmented consensus as Trump’s tariff barrage begins to ripple across the already strained U.S. economy.

As expected, the Federal Open Market Committee voted unanimously the previous week to keep the federal funds rate steady at 4.25%–4.5% — where it’s been parked since the start of the year. But the real story was in the forecasts. These were the first since President Trump unleashed his latest salvo of tariffs in April, and the mood music has clearly shifted: growth down, inflation up, unemployment climbing.

Chair Jerome Powell, in his usual carefully measured post-meeting remarks, claimed the central bank is “well positioned to wait and learn more” before tweaking policy. A noble sentiment — albeit one that increasingly resembles policy paralysis disguised as prudence.
The so-called “dot plot” showed a notable divergence: seven officials now see no rate cuts at all this year (up from four in March), two are floating a single cut, while ten still hold out hope for at least two reductions by the end of 2025. The FOMC is split not just by economics but by ideology and political pressure.

With Trump’s economic adventurism muddying the waters, most Fed officials have opted for a wait-and-see approach. The post-meeting statement dropped previous language about rising risks to employment and inflation while conceding that economic uncertainty, though “lower,” remains high — a rather neat piece of central banker doublespeak.
To no one’s surprise, the Fed and market economists now broadly agree: Trump’s tariffs will sap economic activity while nudging prices higher. Yet investor expectations for cuts were already fully baked in before the Fed caught up. Futures markets still see the first cut arriving in September.
The updated economic forecasts were, bluntly, grim. Inflation for 2025 is now expected to reach 3% (up from 2.7%), while growth is trimmed to a lacklustre 1.4% (from 1.7%). Unemployment is expected to edge up to 4.5%. Stagflation-lite, if you will.

All of this presents the Fed with a classic lose-lose dilemma. Hold rates high to fight inflation, and you exacerbate the slowdown. Cutting rates to stimulate growth risks validating price pressures. Of course, this hasn’t stopped Trump from persistently jawboning the Fed to cut, accusing Powell of being perpetually late to the party.
So far, however, the data aren’t doing Trump any favours. Job growth and inflation remain stubbornly in line with expectations. Core inflation rose less than forecast in May — prompting Trump to once again call for immediate cuts.

Powell, for his part, remains unconvinced. He warned that the tariff costs would “ultimately be borne, at least in part, by the end consumer” — a gentle reminder that protectionism isn’t free, even if it makes for good campaign rhetoric. Historical data, he noted, confirm this. And the Fed would prefer to “see a bit more” before acting — central bank code for: “we don’t want to jump and then regret it.”
In a mildly amusing moment, Powell was also asked whether recent staff cuts at the Fed contradicted his earlier testimony to Congress that the institution wasn’t overstaffed. His response: “We’ll demonstrate we are good stewards of public resources.” Translated: we cut because we had to, not because we wanted to.

Conclusion? The Fed is walking a tightrope, blindfolded, in high winds — while the White House shakes the rope for effect. The official message may be one of patience and data dependency. But beneath the surface, a storm of political interference, inflation anxiety, and economic slowdown is brewing — and the central bank’s credibility is quietly at stake.