The Fed’s fourth consecutive hold reinforces a patient, data-dependent stance as policymakers confront increasingly two-sided risks: slowing growth momentum alongside persistent core inflation pressures. The updated Summary of Economic Projections (SEP) reflects a growing internal divide, with a meaningful subset of policymakers now forecasting little or no additional easing in 2025. Markets remain priced for interest rate cuts, but Fed projections suggest easing could be slower and shallower than market expectations. 

Since the last FOMC meeting on May 7, the macro landscape has grown more complex. Trade policy uncertainty has receded while geopolitical tensions have escalated, driving oil prices higher. While equities have remained resilient, fixed income markets continue to grapple with rate volatility and upward pressure on longer-term yields. Credit spreads remain stable but tight, while real estate markets continue to experience capital markets disruptions. Meanwhile, hard economic data has softened even as sentiment surveys have stabilized. 

The Fed’s SEP shows that while the median forecast still anticipates two rate cuts totaling 50 basis points by year-end—consistent with March’s projections—the consensus is increasingly fragile. Nine of 19 officials now expect fewer cuts, with seven forecasting no cuts in 2025 and two anticipating only one quarter-point move. 

By 2026, most officials foresee policy rates settling in the 3.5% to 3.75% range, lower than the March outlook. But revised growth and inflation forecasts point to emerging stagflationary risks. Policymakers trimmed 2025 GDP growth projections to 1.4% (down from 1.7%), while the unemployment rate is now expected to rise to 4.5% and remain elevated through 2026. More notably, core inflation projections were revised sharply higher to 3.1% for 2025, compared to 2.8% in March, with only gradual easing toward 2.4% in 2026. 

“Our expectation is that 10-year Treasury rates will remain higher for longer against this backdrop,” Rich Hill, global head of real estate research and strategy at Principal Asset Management, told Connect. 

For capital markets participants, the Fed’s cautious posture creates a more challenging forward curve. “While the Fed’s decision to hold rates steady comes as no surprise, it will be met with chagrin by battle-worn real estate investors who continue to navigate volatility and macro uncertainty,” said Marion Jones, executive managing director at Avison Young. “A reduction in rates would have helped facilitate necessary but stalled transactions across multifamily and office sectors.” 

In its post-meeting statement, the Fed characterized the economy and labor market as “solid,” while acknowledging that inflation remains “somewhat elevated” and that outlook uncertainty “has diminished but remains elevated.” 

Bottom line: While projections fall short of outright stagflation forecasts, the combination of slowing growth, rising unemployment, and persistent inflation suggests the Fed sees increasing risk that the economy is trending in that direction.