Take two: Fed and BoJ leave rates unchanged; Fed lowers US economic outlook
- 23 June 2025 (3 min read)
What do you need to know?
The Federal Reserve (Fed) left interest rates unchanged at 4.25%-4.50% for the fourth consecutive meeting, as policymakers continued to take a cautious stance. Officials voted unanimously to hold rates steady but maintained projections for two cuts later this year. Fed Chair Jerome Powell said the bank will wait “to learn more about the likely course of the economy” before considering any adjustments to monetary policy. The Fed now expects the US economy to expand by 1.4% this year, down from its previous estimate of 1.7% while it anticipates inflation – as measured by personal consumption expenditures (PCE) - will rise to 3.0% from 2.7% as the full impact of higher tariffs is felt.
Around the world
Bank of Japan (BoJ) policymakers unanimously voted to keep their key interest rate unchanged at 0.50%, noting it remained unclear how US tariff policy changes would affect financial markets and the domestic economy. AXA IM continues to expect one 25 basis point rate hike this year then no change throughout 2026. Japan headline inflation edged down to 3.5% in May from 3.6% in April, though the core measure excluding fresh food rose to 3.7%, its highest since January 2023, from 3.5%. Elsewhere, the Bank of England also chose to hold rates steady at 4.25%.
Figure in Focus: 1.9%
Eurozone annual inflation was confirmed at 1.9% in May, down from 2.2% in April and falling below the European Central Bank's (ECB) 2% target for the first time since September 2024. A slowdown in services inflation, which fell markedly to 3.2% from 4% previously, was partly behind the decline. Meanwhile, core inflation, excluding energy, food, alcohol and tobacco, dropped to 2.3% from 2.7%, marking the lowest rate since October 2021. Economists expect the ECB to keep interest rates unchanged in July.
Words of wisdom
Lipstick effect: The so-called lipstick effect is often used as a consumer behaviour barometer during periods of economic and financial uncertainty. Defined by McKinsey & Company as “when consumers continue to spend on modest luxury items, such as lipstick, even while the economy weakens,” the consultancy expects the US$450bn global beauty market to grow 5% annually through 2030, a slowdown from the 7% annual growth witnessed between 2022 and 2024. It noted that geopolitical and economic uncertainty, market saturation, and evolving consumer preferences mean industry leaders in the sector will need to “develop a new growth strategy”.
What’s coming up?
On Monday, several flash composite Purchasing Managers’ Indices are issued, including data for the Eurozone, US, UK and Japan. Tuesday sees Germany's Ifo Business Climate Index and Canada's latest inflation numbers published. The BoJ updates markets on its latest economic forecasts on Wednesday with the publication of its Summary of Opinions. The final estimate for US first quarter (Q1) GDP is announced on Thursday, while the UK issues its own final Q1 growth numbers on Friday. Several Eurozone indicators are issued on the same day, including the latest Industrial and Economic Sentiment measures.
Disclaimer
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