Once again, the US Federal Reserve (Fed) maintained the target range for the federal funds rate at 4.25% to 4.50%. In its press release, the Fed notes that recent indicators suggest that economic activity has continued to expand at a solid pace, the unemployment rate remains low, and labor market conditions remain solid. But they also note that inflation remains somewhat elevated and uncertainty about the economic outlook has diminished but remains elevated.

CIBC Capital Markets notes that halfway into 2025 the Fed−like everyone else−remains paralyzed by elevated uncertainty. Trade policy is unsettled with major legal challenges still in play and this complicates the Trump Administration’s plan to pay for, or at least offset, the tax cut extension. And rising geopolitical tensions and a possible oil price shock add to the complexity of the Fed's challenge. They also point out that while the Fed held rates steady, they reduced the amount of expected easing over the projection slightly. The accompanying June projections show the Fed still favours two cuts this year, but only one cut in each of the next two years for a total of 100bps of easing over the cycle.

Leslie Alba, Head, Portfolio Solutions, Total Investment Solutions, CIBC Global Asset Management says the Fed’s decision to hold the federal funds rate at 4.25-4.50% came as expected. “The S&P 500 index and US 10Y treasury yields remained reasonably stable following the announcement, while the US dollar slightly weakened versus the Canadian dollar. Federal Open Market Committee projections shows the median projection for 2025 Gross Domestic Product fell from 1.7% to 1.4% from the March meeting, while the median projection for 2025 Core Personal Consumption Expenditures inflation rose from 2.8% to 3.1%. Overall, the median forecast shows the federal funds rate falling to 3.9% this year, which is unchanged from the March projection.” says Leslie.

“With continued economic uncertainty, it’s difficult to predict what will happen to markets. We believe investors should continue to stick to their long-term investment goals and hold a portfolio that consists of a diversified mix of stocks and bonds. Doing so helps prepare the portfolio for a wide range of potential economic outcomes.”

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