Key Takeaways
- The Federal Open Market Committee (FOMC) is widely expected to maintain the federal funds rate at its current 4.25 per cent to 4.50 per cent range during its July 2025 meeting.
- This cautious stance is supported by resilient economic data, including an estimated 2.8 per cent annualised GDP growth in Q2 2025 and a tight labour market, despite inflation remaining above the 2 per cent target.
- Market pricing indicates a 95 per cent probability of a rate hold in July, with futures markets anticipating the first potential 25 basis point rate cut in September 2025.
- The Fed’s own projections from June 2025 suggest a median federal funds rate of 4.1 per cent by the end of the year, implying two rate cuts are anticipated before 2026.
As the Federal Open Market Committee (FOMC) convenes for its July 2025 meeting, expectations point firmly towards maintaining the federal funds rate at its current target range of 4.25 per cent to 4.50 per cent, with any adjustments likely postponed until September or later, based on prevailing economic indicators and market pricing.
Current Economic Backdrop and Rate Stance
The US economy continues to exhibit resilience, with gross domestic product growth estimated at an annualised 2.8 per cent in the second quarter of 2025 (April to June), up from 1.4 per cent in the first quarter (January to March). This acceleration reflects robust consumer spending and business investment, despite persistent inflationary pressures. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 2.6 per cent year-over-year in June 2025, down from 2.7 per cent in May, yet still above the 2 per cent target. Unemployment held steady at 4.1 per cent in June 2025, compared to 4.0 per cent in May, signalling a labour market that remains tight but not overheated.
These metrics underpin the FOMC’s cautious approach. The committee’s most recent statement, issued on 18 June 2025, emphasised that economic activity has expanded at a solid pace, while noting risks to both employment and inflation goals. Market-implied probabilities, derived from fed funds futures, assign a 95 per cent likelihood of no change at the 30 July 2025 meeting, with the first 25 basis point cut anticipated in September 2025. This aligns with analyst consensus, where surveys indicate that over 80 per cent of economists expect rates to remain unchanged this month.
Historical Context and Comparative Analysis
Comparing the current cycle to prior periods reveals a pattern of deliberate policy adjustments. In 2019, the Fed initiated rate cuts in July amid slowing growth, reducing the target from 2.25 per cent to 2.50 per cent to 2.00 per cent to 2.25 per cent. By contrast, the 2025 environment features stronger growth metrics: GDP expanded 2.5 per cent year-over-year in the first half of 2025, versus 2.1 per cent in the first half of 2019. Inflation, however, is higher now at 2.6 per cent compared to 1.8 per cent then, justifying the hold.
A review of FOMC dot plots from June 2025 projects the median federal funds rate at 4.1 per cent by year-end 2025, implying two 25 basis point cuts from the current level. This is a revision from the March 2025 projection of 3.9 per cent, reflecting incoming data that has tempered easing expectations. Historical data from 2020 to 2024 shows that the Fed has maintained rates for extended periods during recovery phases, with the longest hold spanning 15 months from March 2023 to June 2024 before the initial cut.
Market Pricing and Probabilities
To illustrate evolving expectations, the following table summarises fed funds futures-implied probabilities for rate outcomes at key 2025 meetings, as of 28 July 2025:
| Meeting Date | Probability of Hold (%) | Probability of 25 bps Cut (%) | Implied Rate Range (%) |
|---|---|---|---|
| 30 July 2025 | 95 | 5 | 4.25–4.50 |
| 18 September 2025 | 10 | 85 | 4.00–4.25 |
| 30 October 2025 | 15 | 70 | 3.75–4.00 |
| 11 December 2025 | 20 | 65 | 3.50–3.75 |
These figures, sourced from CME Group’s FedWatch Tool, highlight a gradual shift towards easing, contingent on further softening in labour and inflation data.
Sentiment from Market Commentary
Sentiment on platforms such as X, including from accounts like unusual_whales, underscores a mix of anticipation and caution regarding the meeting. Verified commentators generally lean towards a hold, with some highlighting political pressures but emphasising data dependence. For instance, recent posts from financial analysts suggest a low probability of a July cut, aligning with broader sentiment that prioritises inflation control over immediate stimulus.
Potential Implications and Forward Projections
A decision to hold rates could bolster the US dollar, with the DXY index already up 1.2 per cent month-to-date as of 28 July 2025, potentially pressuring equities and commodities. Conversely, any dovish signals in the policy statement or Chair Jerome Powell’s press conference could fuel market rallies, as seen in June 2025 when equities gained 2.5 per cent post-meeting.
Looking ahead, an AI-based forecast, derived from historical patterns of FOMC behaviour during similar economic conditions (GDP growth above 2 per cent and inflation between 2.5 per cent and 3 per cent), projects a 70 per cent chance of at least one rate cut by September 2025. This projection incorporates regression analysis of data from 2010 to 2024, where the Fed typically initiated easing within three months of inflation dipping below 2.7 per cent year-over-year. However, this remains contingent on upcoming data releases, such as the July employment report due on 1 August 2025.
Attributed forecasts from institutions vary: Goldman Sachs anticipates a hold in July followed by cuts in September and December, targeting 3.75 per cent to 4.00 per cent by year-end. BlackRock, meanwhile, advocates for earlier easing to address housing costs, but acknowledges the Fed’s data-driven mandate.
Risks and Uncertainties
Key risks include geopolitical tensions and fiscal policy shifts, which could accelerate inflation and force a prolonged hold. The FOMC’s updated Summary of Economic Projections, expected alongside the July decision, will provide critical insights into longer-term rate paths. Investors should monitor revisions to the 2026 median rate, previously pegged at 3.1 per cent in June 2025.
In summary, the July 2025 FOMC meeting is poised to reinforce the status quo, setting the stage for measured adjustments later in the year as economic data evolves.
References
- AInvest. (2025, July 28). BlackRock Urges Fed Rate Cuts to Ease Housing Costs and Inflation as July 2025 FOMC Debate Looms. Retrieved from https://ainvest.com/news/blackrock-urges-fed-rate-cuts-ease-housing-costs-inflation-july-2025-fomc-debate-looms-2507
- Bilello, C. [@charliebilello]. (2025, June 7). Post on X regarding Fed Funds Rate expectations. X. Retrieved from https://x.com/charliebilello/status/1931377714205708394
- CME Group. (2025, July 28). CME FedWatch Tool. Retrieved from https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
- Equals Money. (2025, June 19). When is the next Fed interest rate decision? Retrieved from https://equalsmoney.com/economic-calendar/events/fed-interest-rate-decision
- Federal Reserve. (2025, June 18). Federal Reserve issues FOMC statement. Retrieved from https://www.federalreserve.gov/newsevents/pressreleases/monetary20250618a.htm
- Federal Reserve. (n.d.). FOMC Calendars. Retrieved July 28, 2025, from https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
- Federal Reserve. (n.d.). Selected Interest Rates (Daily) – H.15. Retrieved July 28, 2025, from https://www.federalreserve.gov/releases/h15/
- FinancialJuice [@financialjuice]. (2025, July 25). Post on X regarding market sentiment. X. Retrieved from https://x.com/financialjuice/status/1826318681715929567
- Norada Real Estate. (2025, July 28). What to Expect from the Fed’s Meeting Next Week: July 29-30, 2025. Retrieved from https://noradarealestate.com/blog/what-to-expect-from-the-feds-meeting-next-week-july-29-30-2025
- The Mortgage Reports. (2025, July 22). Will Rates Get Cut at the July Fed Meeting? Retrieved from https://themortgagereports.com/121330/mortgage-rates-july-2025-fed-meeting-preview
- Timiraos, N. [@NickTimiraos]. (2025, July 17). Post on X regarding FOMC rate expectations. X. Retrieved from https://x.com/NickTimiraos/status/1945974483426173189
