The Federal Reserve concluded its mid-year policy meeting on Wednesday by keeping interest rates unchanged at 4.5%, as expected. While the rate hold was widely anticipated, the central bank reaffirmed its projection of two rate cuts by the end of 2025, offering a cautious roadmap amid a shifting economic landscape dominated by elevated inflation and renewed tariff pressures.

In its updated economic outlook, the Fed projected that borrowing costs will be reduced during two of the remaining four meetings this year, each likely delivering a 25 basis point cut. The guidance stayed consistent with the Fed’s earlier stance, offering reassurance to markets seeking clarity on the timing and scale of monetary easing.

However, the real market catalyst came from Chair Jerome Powell’s press conference, where he addressed inflation risks tied to the current political environment, particularly renewed tariff threats. Powell warned that incoming tariffs — pushed by trade rhetoric tied to former President Trump’s proposals — are likely to drive consumer prices higher in the coming months.

“Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs,” Powell said. “Ultimately, somebody in the supply chain — be it the manufacturer, importer, or the consumer — is going to bear that cost.”

The comments were interpreted by markets as a signal of prolonged inflation pressure, supporting a stronger US dollar and tempering hopes for aggressive monetary easing. While Powell reiterated the Fed’s data-dependent approach, his remarks highlighted the complicated balancing act between fighting inflation and supporting growth as global trade tensions resurface.

As the Fed looks to the second half of the year, investors will closely monitor inflation data and geopolitical developments — particularly around trade — for further clues on the pace and depth of upcoming rate cuts.