What drove the Fed to keep rates unchanged was echoed in data released today: a storm of policy-driven uncertainty pushing stagflation. The Fed lowered expectations for growth, but raised expectations for inflation and unemployment. They’re in a tricky position, because their dual mandate (full employment and stable prices) cannot be readily achieved with their one policy tool (short-term interest rates), if the Trump administration is so focused on bringing about stagflation with their myriad of policy tools.
Data released for unemployment last week showed continued deterioration, with the four week moving averages for initial and continued claims hitting 18 month highs. Meanwhile, in the housing market, it seems that the shortage that contributed a great deal to the inflation of the past two years will not be addressed anytime soon, and the number of housing permits (units approved) and starts (units where construction was actually started) both reached their lowest level since June of 2020.
The Fed’s Stagflationary Outlook
June 2025: Noting Higher Expectations For Inflation And Unemployment, With Lower Expectations For Growth, The Fed Kept Rates Constant. According to Bloomberg, “Federal Reserve officials left interest rates unchanged and continued to pencil in two rate cuts in 2025, saying uncertainty over the economic outlook was still high but had diminished. The Federal Open Market Committee voted unanimously on Wednesday to hold the benchmark federal funds rate in a range of 4.25%-4.5%, as they have at each of their meetings this year. Officials also downgraded their estimates for economic growth this year while lifting their forecasts for unemployment and inflation.” [Bloomberg, 2025-06-18]
Noting The Persistence Of Economic Uncertainty, Fed Projections Widened Across FOMC Members. According to Bloomberg, “The shift in projections appeared to show a wider divide among policymakers over the likely direction of rates, at least in 2025. Asked about the division, Powell downplayed the projections. Given the high level of uncertainty in the economy, he said, ‘No one holds these rate paths with a lot of conviction.’ ‘Uncertainty about the economic outlook has diminished but remains elevated,’ officials said in their post-meeting statement.” [Bloomberg, 2025-06-18]
FOMC Participants Raised Their Expectations For Inflation To 3 Percent And Unemployment To 4.5 Percent, While Cutting Their Expectations For Growth To 1.4 Percent. According to Bloomberg, “Policymakers on Wednesday also issued updated quarterly rate projections and economic forecasts, the first since Trump unveiled sweeping tariffs on US trading partners — many of which he has since pared back or delayed. Officials raised their median estimate for inflation at the end of 2025 to 3% from 2.7%. They marked down their forecast for economic growth in 2025 1.4% from 1.7%. They forecast an unemployment rate of 4.5% by the end of the year, up slightly from their previous estimate. The projections reflect the thorny situation facing Fed policymakers. Growing inflationary pressures typically suggest the Fed policy should restrain the economy with elevated rates, while weakening growth calls for stimulus through lower rates. Trump this year has repeatedly pushed for the Fed to cut rates, arguing the central bank under Powell has often been late to adjust policy.” [Bloomberg, 2025-06-18]
Employment
Code
# Set up custom plot themeinclude("../scripts/oxocarbon-plot.jl")theme(:oxocarbon)# Load Necessary PackagesusingFredData, DataFrames, Dates# Set Up Fred APIkey =ENV["FRED_API_KEY"]f=Fred(key)# Load The Datasmooth_initial=get_data(f, "IC4WSA"; observation_start="2023-12-01", observation_end="2025-06-15" ).datainitial=get_data(f, "ICSA"; observation_start="2023-12-01", observation_end="2025-06-15" ).data# Create a Plotplot(smooth_initial.date, smooth_initial.value ./1_000; xlabel="Week", ylabel="Initial Unemployment Claims ('000)", linewidth=2, label="4 Week MA", title="Elevated Initial Claims", )scatter!(initial.date, initial.value ./1_000; alpha=0.75, label="Reading" )vline!([Date(2025,1,20)]; linestyle=:dash, linewidth=2, label="Inaguration" )hline!([smooth_initial.value[end] /1_000]; linewidth=2, linestyle=:dash, label="", )vline!([Date(2025,4,2)]; linestyle=:dash, linewidth=2, label="Tariffs", )
NOTE: The labor market showed continued signs of softening. While the smoothed rate of initial claims climbed to its highest measure in more than 18 months, it was not notably outside of the range of observed values. For continued claims, however, that cannot be said. Even though the number measured this week was slightly lower than the one measured last week, the volatile nature of this series means that the four week moving average is more useful, and that continued to climb, up to a level well beyond what has been observed in the last year and a half.
Housing
Code
# Gather Datastarts=get_data(f, "HOUST"; observation_start="2020-06-01", observation_end="2025-05-02").datapermits=get_data(f, "PERMIT"; observation_start="2020-06-01", observation_end="2025-05-02").data# Make the Plotplot(starts.date, starts.value, linewidth=2, xlabel="Date", ylabel="Hosuing Units ('000)", label="Starts", title="May 2025: Least Housing Production Since Covid", legend=:topright, )plot!(permits.date, permits.value, label="Permits", linewidth=2 )hline!([starts.value[end]], linestyle=:dash, linewidth=2, label="" )vline!([Date(2025,4,2)], label="Tariffs", linewidth=2, linestyle=:dash )hline!([permits.value[end]], linestyle=:dash, linewidth=2, label="" )