The Federal Open Market Committee voted unanimously to leave the federal funds target range unchanged at 4.25% to 4.50%, marking the fourth consecutive meeting without a change. The decision was widely expected, but the accompanying statement and Chair Jerome Powell's press conference offered the clearest signal yet that policymakers are preparing the ground for a rate cut in the second half of the year.
The post-meeting statement was modestly revised. The committee dropped the prior reference to inflation being 'somewhat elevated' and replaced it with language acknowledging 'continued progress' toward the 2% target. The statement also softened its characterization of the labor market, noting that 'job gains have moderated' rather than 'remained strong' — a small but meaningful shift that suggests officials are giving more weight to the recent slowdown in payroll growth.
Powell, in a 45-minute press conference, walked a careful line. He emphasized that the committee remains data-dependent and that 'no decision has been made' about the timing of the first cut. But he repeatedly highlighted the cumulative evidence of disinflation, the cooling in shelter costs that BLS data is expected to capture in coming months, and the rebalancing of the labor market — three pillars of the case for easing.
On the dot plot, the median FOMC participant now expects one 25-basis-point cut by year-end, down from two in the March projections. However, the dispersion is wide: seven of the 19 participants see two cuts, four see one, and two see no cuts at all. Powell noted that the dots 'are not a plan' and that the committee will respond to the data as it arrives.
Markets had been positioned for a slightly more dovish outcome. The dollar strengthened modestly on the dot plot revision, and the two-year Treasury yield rose three basis points before retracing. Fed funds futures continue to price a first cut in September, with about 40 basis points of total easing expected by January 2027.
Powell was pressed repeatedly on the labor market. He acknowledged that the unemployment rate has drifted up to 4.1% from a cycle low of 3.4%, but argued that the increase reflects rising labor force participation rather than layoffs. Initial claims for unemployment insurance remain near 220,000 a week — a level consistent with a healthy labor market — and the JOLTS quits rate, while down from 2022 highs, is still above pre-pandemic averages.
For workers and employers, the practical implication is that borrowing costs are likely to remain elevated through the summer, but the direction of travel is now clearly down. Mortgage rates, which have been stuck near 7%, should ease modestly as expectations for cuts firm up. Business investment, which has been muted in interest-rate-sensitive sectors like commercial construction, may begin to recover in the back half of the year — a tailwind for hiring in those industries heading into 2027.