The Fed maintains its critical rate Don’t change Wednesday As it awaits other information on how tariffs and other potential damages can affect the economy this year.
Fed policymakers say they still expect to lower the tax rate twice this year, although they also expect President Donald Trump’s import duties to push higher inflation. They also expect growth to slow down and unemployment, thereby increasing Latest quarterly forecast Release Wednesday.
Fed policymakers lowered three times in the second half of last year but have been put on hold since then. Inflation has been cooling steadily since January, but Fed Chairman Jerome Powell said in a press conference that tariffs could reverse that progress and push inflation higher in the coming months. The Fed expects inflation to be temporary, but they want to see more data for sure.
“The tariff increase this year could push up prices and weigh economic activity,” Powell said. “This is something we know is coming, we just don’t know the size of it.”
The Fed’s price will usually be changed – Although not always – Affecting the borrowing costs of mortgages, car loans, credit cards and commercial loans.
Inflation has been falling so far, and there are some cracks in the economy, especially in housing, where higher borrowing costs are slowing down sales and home construction. Recruitment has also slowed down. This trend often causes the Fed to lower its critical rate, currently at about 4.3%.
However, Powell said the economy is still in good shape and the Fed must consider the potential for prices to rise soon.
“In the job market, you might see a very, very slow continuous cooling,” he said, “but there is nothing to bother at the moment.”
“We have to look forward,” Powell later said. “We want to reach meaningful inflation in the coming months, and we have to take that into account.”
Powell also said the Fed will learn more about how tariffs will affect the economy in the summer. George Pearkes, a global macro strategist at Custom Investment Group, said he explained that the Fed was not cut until September at the earliest. The next meeting is in July.
“Unless we see a very, very fast deterioration in the labor market, we won’t see cuts until September, and maybe not even cuts,” he said.
Wall Street investors are currently expecting the Fed to reduce in September, according to tracked futures prices CME FedWatch.
According to forecasts released on Wednesday, Fed officials believe it will rise to 3% from 2.1% in April by the end of this year, according to their preferred measures. They also noted that the unemployment rate will rise to 4.5% from its current 4.2%. Growth is expected to be only 1.4% this year, down from 2.5% last year.
Claudia Sahm, chief economist at New Century Advisors and former Fed economist, said the forecasts suggest that policymakers do want inflation to fall in 2026 and 2027, with tariffs only temporary effects. Without responsibility, officials will soon lower interest rates, she said.
“The Fed seems to agree that it will be temporary, but their beliefs are not high enough,” she said.
Inflation has cooled down so far this year Only 2.1% in Aprilessentially back to the central bank’s target of 2%. The core inflation rate excluding volatile food and energy categories remained at 2.5%.
Trump pointed out that moderate inflation data believes that the Fed should reduce borrowing costs and repeatedly criticize Powell for not doing so. On Wednesday, he called Powell “stupid” and accused him of not lowering the rate.
“So, we don’t have inflation, we only have success,” Trump said before the Fed announced its decision. “I want to see interest rates drop.”
Trump has previously argued that lowering tax rates will boost the economy. Now, his focus has shifted to federal government borrowing fees, with interest payments over $1 trillion in annual amounts since the pandemic.
Pushing the Fed to lower interest rates simply to save government interest payments often raise alarms from economists because it will threaten the Fed’s congressional mission to focus on stable prices and highest employment.
One of Trump’s complaints is that even though other central banks around the world lowered borrowing costs, including Europe, Canada and the UK, the Bank of Japan did not lower interest rates recently when it actually raised its main short-term tax rates.
But the European Central Bank, Bank of Canada and the Bank of England have lowered rates this year, in part because U.S. tariffs are weakening their economies. So far, the U.S. economy has been mostly stable with low unemployment.
Bank of England lowers its tax rates Twice this year But it is expected to remain unchanged by 4.25% when it meets Thursday.
