FOMC Projections June 2025: 3 Key Data Points Defining Fed’s Economic Risk Outlook

Key Points

It seems likely that the Federal Reserve’s main economic risk is stagflation, characterized by slow growth, high unemployment, and rising inflation.
Research suggests three key data points define this risk: a lowered 2025 GDP growth forecast to 1.4%, an increased core PCE inflation outlook to 3.1%, and a higher unemployment rate projection of 4.5%.

The Fed’s Economic Risk

The Federal Reserve’s recent projections indicate a growing concern over stagflation, a scenario where economic growth slows, unemployment rises, and inflation remains high. This risk is highlighted by changes in their forecasts for 2025, showing a more challenging economic outlook.

Defining Data Points

The three data points that define this risk are:

GDP growth for 2025, now projected at 1.4%, down from 1.7%.
Core PCE inflation, expected to rise to 3.1%, up from 2.8%.
Unemployment rate, forecasted to increase slightly to 4.5%, from 4.4%.

These projections, based on the Fed’s June 2025 meeting, suggest a tougher economic environment, increasing the likelihood of stagflation. For more details, see the official projections at FOMC Projections.

Comprehensive Analysis of the Federal Reserve’s Economic Risk

Introduction

This analysis explores the Federal Reserve’s (Fed) primary economic risk as identified in recent projections, focusing on the data points that define this risk. Given the current economic climate as of June 21, 2025, the Fed’s concerns center around the potential for stagflation—a combination of slow economic growth, rising unemployment, and persistent inflation. This report synthesizes information from official Fed documents and financial analyses to provide a detailed understanding of the situation.

Background on Stagflation and Fed Concerns

Stagflation is an economic condition where growth stalls, unemployment increases, and inflation remains above target levels, posing significant challenges for monetary policy. The Fed’s June 2025 meeting, held on June 17-18, provided updated economic projections that suggest an increased risk of this scenario. These projections are part of the Summary of Economic Projections (SEP), released alongside the Federal Open Market Committee (FOMC) decisions, and reflect the Fed’s assessment based on current data and policy expectations.

Recent analyses, such as those from Yahoo Finance, highlight that the Fed’s forecasts point to a “bout of stagflation” becoming a significant story for the summer of 2025. This is driven by factors such as anticipated impacts from tariffs and geopolitical risks, which could exacerbate economic pressures.

Identification of the One Big Economic Risk

The one big economic risk identified is stagflation, characterized by:

Slower economic growth, as indicated by revised GDP forecasts.
Higher inflation, particularly in core measures excluding volatile food and energy prices.
Rising unemployment, signaling weaker labor market conditions.

This risk is particularly concerning because it complicates the Fed’s dual mandate of achieving maximum employment and price stability, as rate cuts could fuel inflation while rate hikes might increase unemployment.

Three Data Points Defining the Risk

The three key data points, derived from the Fed’s June 2025 projections, are as follows:

Indicator	June 2025 Projection	Previous Projection (March 2025)	Change
GDP Growth	1.4%	1.7%	Decreased
Core PCE Inflation	3.1%	2.8%	Increased
Unemployment Rate	4.5%	4.4%	Increased

These projections are based on percent changes from the fourth quarter of the previous year to the fourth quarter of 2025 for GDP growth and core PCE inflation, and the average civilian unemployment rate for the fourth quarter of 2025. The median values are used for clarity, with central tendencies and ranges provided in the official documents for additional context.

GDP Growth (1.4%): The Fed lowered its 2025 GDP growth forecast from 1.7% to 1.4%, indicating slower economic expansion. This reflects concerns about potential slowdowns due to external factors like tariffs and trade policies.
Core PCE Inflation (3.1%): The core Personal Consumption Expenditures (PCE) inflation outlook was raised from 2.8% to 3.1%, signaling higher inflation pressures, particularly in non-volatile components, which is a key measure for the Fed.
Unemployment Rate (4.5%): The unemployment rate projection increased slightly from 4.4% to 4.5%, suggesting a softening labor market, which aligns with the stagflation narrative.

These changes, compared to the March 2025 projections, underscore the Fed’s revised, more cautious outlook, highlighting the risk of stagflation as economic growth slows while inflation and unemployment rise.

Context and Supporting Evidence

The revisions in these projections were discussed in the context of the June 2025 FOMC meeting, which was described as uneventful for markets but revealed critical details in the SEP. Financial analyses, such as those from Yahoo Finance and CNBC, interpreted these changes as signaling increased stagflation risks, particularly with mentions of tariffs and geopolitical uncertainties. For instance, Fed Chair Jerome Powell noted in post-meeting comments that large tariff increases could lead to higher inflation, slower growth, and increased unemployment, aligning with the stagflation scenario.

Additional economic data, such as the Conference Board’s Leading Economic Index and Bureau of Economic Analysis reports, provide broader context but were not directly cited as the defining data points. Instead, the focus remains on the Fed’s forward-looking projections, which encapsulate these risks based on current and anticipated economic conditions.

Implications and Interpretation

The combination of lower GDP growth, higher core PCE inflation, and a rising unemployment rate suggests a challenging economic environment where traditional monetary policy tools may be less effective. Rate cuts could exacerbate inflation, while maintaining or raising rates might further slow growth and increase unemployment. This dilemma is central to the Fed’s current strategy, with officials indicating a cautious approach, potentially delaying rate cuts until September or October 2025, as per market expectations.

The risk of stagflation is particularly significant given its historical challenges, as seen in the 1970s, and its potential to impact consumer confidence, investment, and overall economic stability. The Fed’s projections, therefore, serve as a critical indicator for policymakers, investors, and the public, highlighting the need for vigilant monitoring of economic indicators.

Conclusion

In summary, the Fed’s one big economic risk, as of June 2025, appears to be stagflation, defined by three key data points from their updated projections: a lowered GDP growth forecast to 1.4%, an increased core PCE inflation outlook to 3.1%, and a slightly higher unemployment rate projection of 4.5% for 2025. These projections, supported by official Fed documents and financial analyses, underscore the complexity of the current economic outlook and the Fed’s cautious approach to managing these risks.