Fed watchers may want to consider taking the summer off this year.
Federal Reserve Board members are likely to maintain their “wait-and-see” approach of the past few months, thanks to economic data showing little need for decisive monetary policy action in the near term. For example:
- Inflation is reasonable: The Personal Consumption Expenditures (PCE) Price Index rose 2.1% in April on an annual basis—the lowest rate since September—while the core inflation rate (which excludes the volatile food and energy categories, and is the Fed’s preferred measure of inflation) came in at 2.5%, the lowest level since March 2021. Both numbers are relatively close to the Fed’s target inflation rate of 2%.
- The job market is healthy: Although the labor market has softened recently, the number of new jobs added each month—139,000 in May, for example—remains strong enough to keep unemployment near historically low levels and prevent the Fed from having to shore up conditions through rate cuts.
- Tariff uncertainty remains high: It’s still unclear how President Trump’s widespread tariffs will play out and impact inflation and economic growth rates. Given this uncertainty, there is little incentive for the Fed to act.
As a result, the current implied federal funds rate for December 2025 (derived from fed funds futures) is hovering right around where it began the year, roughly 3.9% (see the chart). Moreover, despite falling sharply when tariff-based risk was at its highest, the implied rate has barely moved over the past month.
Implied Federal Funds Rate in December 2025
The upshot: Unless some truly surprising economic data comes out of left field, don’t expect drama when the Fed meets in June and July. For now, tariffs remain the story to watch.
By Mike Dickson, Ph.D.
Originally published June 11, 2025
For more news, information, and analysis, visit the ETF Strategist Channel.
The PCE Price Index tracks the prices of goods and services purchased by households and on their behalf. Reference to an index does not imply that any account will achieve returns, volatility or other results similar to that index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. Indices are unmanaged and do not have fees or expense charges, both of which would lower returns. It is not possible to invest directly in an index. Information obtained from third party sources is believed reliable but has not been vetted by the firm or its personnel.
This commentary is written by Horizon Investments’ asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves the risk of loss.
The investments recommended by Horizon Investments are not guaranteed. There can be economic times when all investments are unfavorable and depreciate in value. Clients may lose money. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent. Forward-looking statements cannot be guaranteed. Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
