FOMC Quick Take June 2025
Zachary Griffiths, CFA - Head of IG & Macro Strategy, CreditSights
Winnie Cisar - Global Head of Strategy, CreditSights
Brian Perez - Analyst, Credit Strategy, CreditSights
Kathleen Tang - Analyst, Strategy, CreditSights
18 June 2025
Insights into how the June 2025 FOMC decision could shape U.S. monetary policy and credit markets
- Key Takeaways from the June 2025 FOMC Meeting: Understand why the Fed held rates steady and signaled fewer rate cuts through 2027 amid persistent inflation risks.
- Stagflation Risks in Focus: Explore the Fed’s updated economic projections showing downgraded growth, elevated inflation, and rising unemployment forecasts for 2025 and beyond.
- Policy Rate Outlook: Learn why the Fed expects to keep rates above the neutral level through 2027 and how market expectations for future cuts compare.
- Implications for Credit Markets: Discover why defensive positioning in US corporate credit remains favored as fundamental risks are expected to widen IG and HY spreads in H2 2025.
- What to Watch for Investors: Examine how shifting Fed projections on growth, inflation, and unemployment may affect broader risk sentiment and fixed income strategy.
Executive Summary
- The Fed held rates steady and now anticipates one fewer rate cut through 2027. The median policymaker continues to expect two cuts this year, but the average projection rose another 5 bp, indicating growing risk the Fed cuts less than the median dot would indicate.
- Stagflation concerns are evident in the Fed’s updated summary of economic projections (SEP). Growth was marked down to just 1.4% in 2025, while the headline and core PCE deflators were marked up to at or above 3.0% for this year. The unemployment rate is forecast to be 4.5% in 2025 and 2026, and above the longer run estimate through 2027.
- We remain comfortable with our core recommendation for defensive positioning in US corporate credit. While technicals are in the driver’s seat for now, we think fundamental concerns from the projected stagflation-lite economic environment will drive spreads modestly wider in the second half of the year.
The Fed held rates steady as widely expected, while the median dot continues to indicate two cuts in 2025. This matched our expectations laid out in our preview piece (US COTD: Fed Preview June 2025). The 2026 and 2027 median dots each shifted 25 bp higher, indicating one fewer rate cut expected through 2027 (chart below). The median FOMC policymaker expects the policy rate to be 3.375% in 2027, above the longer run estimate, which was unchanged at 3.0% for the second consecutive meeting. The longer run dot rose at each meeting in 2024. The current dot plot indicates the Fed anticipates keeping the policy rate at least in modestly restrictive territory through 2027. We remain skeptical that the Fed will be able to deliver the two cuts indicated by the 2025 dot, but agree with the idea that the policy rate will remain higher for longer as a result of the current policy mix coming out of Washington. Market pricing for the path of the Fed is roughly consistent with the dot plot for 2025, but the market prices in more aggressive easing in 2026 with a 3.1% rate priced in presently by the USD OIS market (gray line, chart below).
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