US Federal Reserve stood on the sidelines and again paused interest rate cuts on Wednesday, flagging greater inflation and jobs risks amid increased economic uncertainty as a result of President Donald Trump’s bold tariff initiatives.
Federal Open Market Committee (FOMC), however, decided in unison that the key lending rate at the central bank shall continue in the band of 4.25% to 4.50%, a official announcement indicated.
The move supports the Fed’s twin mandate for maintaining price stability and achieving maximum employment. While the American economy has held firm, the Fed signaled apprehension that recent tariffs can distort trade and prices over the next several months.
Tariff Impact Overshadows Economic Projections
The Fed observed that “swings in net exports” had not been a major disruptor to economic activity yet, citing an uptick in imports prior to the implementation of Trump’s new tariffs. Last month, the president imposed high tariffs on Chinese imports and a 10% base on other nations’ imports. Markets have subsequently seen volatility, and the administration subsequently delayed new tariffs until July to permit trade renegotiation time.
In the meantime, recent economic readings point to a possible Q1 contraction, as inflation crept nearer to the Fed’s 2% threshold and unemployment rested near all-time lows.
Powell Set to Dampen Rate Speculations
Fed Chief Jerome Powell is set to “make very little news” in his press briefing later Wednesday, says Nationwide Chief Economist Kathy Bostjancic, as he steers through increasing political pressure regarding Fed policy.
President Trump recently renewed his criticism of Powell and had said in an interview, “He should lower them,” with regard to interest rates. Against the pressure from the public, Trump confirmed he had no intention of firing Powell ahead of his term ending next year.
Economists cautioned that political remarks would harm impressions of the Fed’s independence. “By publicly opining about what the Fed should do, they potentially undermine…the public’s perception of the institution’s commitment to price stability,” added Rodney Ramcharan, an ex-Fed economist now at USC Marshall School of Business.
Rate Cut Expectations Pushed to Later in 2025
Most analysts have changed their expectations, no longer forecasting a rate cut in June. As tariffs will increase consumer prices and slow down economic growth, most now anticipate policy action after July 8—the expiration of the existing 90-day tariff truce.
“The Fed policy outlook is very uncertain,” UniCredit economists stated in a recent report, forecasting no rate cut before September. Goldman Sachs Chief Economist Jan Hatzius seconded this, saying, “We have brought forward the first of the three consecutive 25bp insurance reductions in our baseline forecast from June to July.”
As the Fed works in a politically sensitive environment and unsettled global trade conditions, its next steps will be influenced to a great degree by economic data and inflation dynamics in the coming months.
