Yellen Signals Potential September Rate Cut as Fed Holds Rates

U.S. Treasury Secretary Janet Yellen has indicated that if the Federal Reserve does not cut interest rates at its upcoming meeting, a larger rate cut could be implemented in September. This statement comes as the Federal Reserve has maintained the federal funds rate at 4.25%–4.50% for the fourth consecutive meeting in June 2025, aligning with expectations. The Fed's decision reflects a cautious approach to evaluating the economic impact of President Trump’s policies, particularly those related to tariffs, immigration, and taxation.

Yellen's comments suggest a potential shift in monetary policy, indicating that the Fed may be more inclined to adjust interest rates in response to evolving economic conditions. This stance aligns with President Trump's repeated calls for rate cuts, although the Fed has been cautious in its approach. Federal Reserve Chairman Jerome Powell has previously stated that there is no rush to lower interest rates, emphasizing the need for a better understanding of the impact of tariffs on the economy before making any adjustments.

The Fed's updated projections show a downgraded GDP growth forecast for 2025 to 1.4% (from 1.7% in March) and for 2026 to 1.6% (from 1.8%), while leaving the 2027 estimate unchanged at 1.8%. The unemployment rate is now expected to be 4.5% in both 2025 and 2026, up from previous estimates of 4.4% and 4.3%, respectively. Inflation projections have also been adjusted, with the PCE rate expected to be 3.0% in 2025 (up from 2.7%), easing to 2.4% in 2026 (from 2.2%), and 2.1% in 2027 (from 2.0%).

Yellen's remarks suggest that the Fed may be considering a more aggressive approach to rate cuts if economic conditions warrant it. This could signal a shift in the Fed's stance, potentially leading to a more accommodative monetary policy in the coming months. The Fed's decision to maintain the federal funds rate at its current level reflects a cautious approach, but Yellen's comments indicate that the central bank may be prepared to act more decisively if necessary.