The Federal Reserve left interest rates unchanged after its fourth Federal Open Market Committee (FOMC) meeting of 2025, maintaining the federal funds rate at 4.25–4.50% for the fourth consecutive time. Despite leaving policy untouched, officials downgraded their economic outlook and signaled growing hesitation around rate cuts this year.
The Fed’s median forecast now calls for just two rate cuts in 2025, down from earlier projections, with more members shifting toward no rate reductions at all. Updated projections show that the central bank expects economic growth to slow from 1.7% to 1.4%, inflation to rise to 3.1% from 2.8%, and unemployment to increase to 4.5% from 4.4%.
In its statement, the Fed said it remains on hold as it monitors incoming inflation data and the potential effects of tariffs while also assessing labor market conditions and global developments. Officials will also continue to reduce the Fed’s balance sheet by allowing Treasury, agency debt, and mortgage-backed securities to roll off—an effort expected to ease upward pressure on long-term bond yields over time.
Bond markets responded modestly to the announcement. Yields on 10-year Treasury bonds increased slightly, continuing a volatile year characterized by concerns over inflation and rising federal deficits. Although Treasury yields peaked in mid-January, they remain high compared to 2024 and have directly contributed to increased interest rates for consumers.
Rising bond yields have pushed up auto loan rates, further straining vehicle affordability. As of June, the average interest rate for new-vehicle loans had climbed to 9.52%, up 84 basis points year-to-date. The average used-vehicle rate increased to 14.18%, just below February’s 25-year high of 14.79%.
Tighter supply conditions and tariffs have also driven up vehicle prices. Combined with high financing costs, these pressures have weighed on consumer demand. Relief appears unlikely in the near term, with the Fed in wait-and-see mode and bond yields facing upside risk from elevated federal borrowing.
The result is a summer of uncertainty for consumers, dealers, and automakers alike. With rate cuts potentially off the table until late 2025, and key data on inflation and tariffs still to come, the auto industry may be in for a prolonged slowdown.
