Market Update for 6/18/25

Market Update

The Fed announced no change to its interest rate policy at its June Federal Open Market Committee (FOMC) meeting (held June 18, 2025). Please read our key takeaways below:

• We believe our diversified portfolios are well positioned to navigate the current uncertainty and continue to meet the long-term financial goals of our clients.
• The Fed left interest rates unchanged and continues to anticipate two 0.25% interest rate cuts (0.50% of total cuts) through 2025.
• Given the continued economic uncertainty, the Fed is likely to be measured in cutting interest rates, resulting in a higher-for-longer interest rate environment, with a downward bias.
• Historically, both stocks and bonds have performed well when the Fed resumes rate cuts, though we are cautious on current stock market concentration and valuations.

Fed Leaves Rates Unchanged, Reiterates Two Rate Cuts for 2025

As expected, the Federal Reserve (Fed) left interest rates unchanged at its June FOMC meeting. This came as no surprise, as the market had all but priced in that expectation ahead of time. The press release noted that economic activity continued to expand at a solid pace and the labor market remains robust, though inflation is still somewhat elevated.

Of particular interest was the accompanying summary of economic projections, aka the “dot plot” forecasts, which showed the Fed continues to anticipate cutting the fed funds rate by 0.50% (two 0.25% cuts) through the remainder of 2025.

This outlook for 0.50% of cuts was unchanged from the Fed’s estimate in March 2025, despite an increase to the Fed’s near-term inflation expectations. At his subsequent press conference, Fed Chair Powell noted that near-term measures of inflation have moved higher, with tariffs being the driving factor. He also noted that the impact of tariffs is likely to result in a one-time increase in the price level, with expectations for a reduction in inflation towards the Fed’s 2% goal by the end of 2027.

Relative to its March expectations, the Fed also revised lower its expectations for economic growth in 2025 and 2026, and anticipates marginally more moderation in the labor market. At his press conference, Powell noted that labor conditions remain solid and consistent with maximum employment, and the labor market is not a significant contributor to inflation.

Higher-For-Longer Rates with Downward Bias

Beyond 2025, the Fed currently expects the pace of interest rate cuts will slow, with only one rate cut expected in both 2026 and 2027. This infers a higher-for-longer interest rate environment, albeit with a downward bias.

Given the continued economic uncertainty, the Fed is likely to be measured and slow to cut rates, as indicated in the above forecasts. The FOMC statement further underscored this view, highlighting that the Fed remains data-dependent in assessing the appropriate stance of monetary policy. Powell alluded to this at his press conference, stating that the Fed is well positioned to wait to learn more about the economic data before making any monetary policy decisions. He also emphasized that economic forecasts are subject to uncertainty, and economic uncertainty is currently elevated.

Investment Implications

If history is a guide, a resumption in Fed rate cuts may be positive for both stocks and bonds. Historically, both stocks and bonds have performed well when the Fed resumes rate cuts.

With that being said, we are cautious on stock market concentration and current valuations, which appear stretched relative to historic averages. We believe pockets of relative value may be found with international stocks, which have performed relatively well year-to-date. Bond yields are currently attractive relative to recent history, and the macroeconomic backdrop may support bond prices, particularly if the Fed begin cutting interest rates. Moving forward, and under a higher-for-longer interest rate environment with a downward bias, we believe alternative investments may continue to offer attractive risk-adjusted return potential.

Ultimately, we believe our diversified portfolios are well positioned to navigate the current uncertainty and continue to meet the long-term financial goals of our clients.

If you have any questions, please do not hesitate to contact your Wealth Advisor.