The central bank will hold steady amid economic uncertainty driven by tariffs.
The US Federal Reserve has kept interest rates unchanged, brushing off President Donald Trump’s demands to lower borrowing costs, and said that the risks of higher unemployment and higher inflation have risen.
The Central Bank kept its benchmark rate at 4.25 percent to 4.5 percent, where it has been since December, after cutting it three times in a row at the end of last year. Its vote to hold rates steady was unanimous.
In a statement, the Fed said that “uncertainty about the economic outlook has increased further”, as it justified keeping rates consistent despite pressure from the White House.
Many economists and Wall Street investors still expect the Fed will reduce rates two or three times this year, but the sweeping tariffs imposed by Trump have injected a tremendous amount of uncertainty into the US economy and the Fed’s policies.
It is unusual for the Fed to say that the risk of both prices and unemployment have increased. But economists say that is the threat created by Trump’s sweeping tariffs. The import taxes could both lift inflation by making imported parts and finished goods more expensive, while also raising unemployment by causing companies to cut jobs as their costs rise.
The economy overall has “continued to expand at a solid pace,” the Fed said in a policy statement, attributing a drop in first-quarter output to record imports as businesses and households rushed to front-run new import taxes.
The Fed said that it was also “strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.”
The Fed said that one of the driving factors behind its decision is the state of the labour market as well as “inflation pressures and inflation expectations, and financial and international developments.”
The US Labor Department in the jobs report published last week showed 177,000 jobs were added to the US economy consistent with growth levels over the last 12 months. The report, however, was on employment before “liberation day”, when Trump announced his sweeping tariff policy, which has since driven global economic uncertainty. The ADP jobs report, which is a more immediate metric, showed job growth at 62,000.
Fed Chair Jerome Powell said in a news conference after the interest rate decision that leaving rates unchanged keeps the central bank in a good position to respond.
“For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell told reporters. “It’s still a healthy economy, albeit one that is shrouded in some very downbeat sentiment on the part of people and businesses,” he added.
“The Fed statement was a statement of the obvious. They gave roughly equal airtime to the threats to growth and inflation, so that tells us we need to wait and see how the data shake out between now and the June meeting before deciding whether they’re going to prioritise keeping inflation expectations contained or to address any hit to growth,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
Leave a comment