Overview
The Federal Reserve's June 2025 economic projections present a cautious outlook, highlighting persistent risks around growth, inflation, and employment. The Fed expects below-trend growth, sticky inflation, and sustained higher interest rates, signaling continued economic uncertainty.
Fed’s June 2025 Economic Projections
- Real GDP growth forecast for 2025 is 1.4%, down from 1.7% in March.
- Unemployment rate expected to rise to 4.5% in 2025, up from 4.4%.
- PCE inflation projected at 3.0%, and core PCE inflation at 3.1%, both above March estimates.
- Growth is forecasted to remain below trend through at least 2027 (1.8%).
- Unemployment projected near 4.5% until 2026, slightly improving to 4.4% in 2027, still above the long-run average.
- Inflation, including core PCE, is expected to remain above the Fed’s 2% target through 2027.
- The Fed projects higher interest rates: 3.9% this year, declining to 3.4% by 2027.
Risks and Uncertainty
- The Fed explicitly highlights “considerable uncertainty” in its projections due to imperfect models and unpredictable economic developments.
- Error ranges for projections: GDP ±1.7% (2025), ±1.8% (2026), ±2.2% (2027); unemployment ±0.9% to ±1.9%; inflation ±1.0% to ±1.7%.
- Many Fed participants view risks as tilted toward lower growth and higher inflation.
- Elevated uncertainty exists regarding both GDP growth and inflation outcomes.
- Some members see unemployment risks weighted toward higher-than-forecast joblessness.
Implications for Policy and Economy
- The Fed plans to keep interest rates higher for longer to ensure inflation is contained.
- Persistent high rates will impact borrowing costs for homebuyers, businesses, and investors.
- If conditions worsen, the Fed could use non-traditional tools like forward guidance or asset purchases for additional support.
Defensive Portfolio Strategies (Sponsorship Commentary)
- Healthcare is highlighted as a defensive sector with steady demand and long-term growth drivers.
- The Harvest Healthcare Leaders Income ETF (HHL) aims for income generation and lower volatility via covered calls and diversification.
Decisions
- Maintain elevated interest rates: The Fed will keep rates higher for longer, given persistent inflation risks.
Action Items
- TBD – Fed policymakers: Monitor economic data to adjust policy as needed.
- TBD – Investors: Consider defensive and income-oriented investment strategies amid heightened uncertainty.
Questions / Follow-Ups
- Will the Federal Reserve’s caution prove overly pessimistic, or will further shocks occur?
- How effective will non-traditional tools be if deployed in response to worsening conditions?