Federal Reserve doesn’t budge on interest rates as Trump tariff uncertainty still reigns

• The Federal Reserve is almost expected It would stand on monetary policy because the current economic data is still relatively strong. The scenario of the worst condition in the end includes a tariff that causes “stagnation”, the terrible mixture of high prices and the high unemployment that puts central banks in a difficult position.

The Federal Reserve did not transfer interest rates in 2025, as the central bank continues its “waiting and vision” approach in the wake of president Donald Trump’s tariff.

After Wednesday’s meeting, the central bank announced that it will maintain the price of federal funds, which banks use to borrow from each other overnight, between 4.25 % and 4.5 %. The federal reserve continues to wait for more clarity around the place where the economy can go to all changes in American commercial policy.

“The uncertainty about economic expectations has increased,” the Federal Reserve Bank said in a statement on Wednesday.

The retention rates were almost completely expected. Almost both Wall Street expected the Federal Reserve to determine monetary policy because the current economic data is still relatively strong.

“The inflation image remains high, and unemployment is still relatively continuous, and therefore the Federal Reserve lacks the ingredients needed to lower prices,” wrote Chris Brigati, the chief investment employee of the Texas Insurance and Financial Services Company.

Trump’s chaotic tariff markets at early last month and caused a decrease in prominent measures of consumer morale. The latest edition of the beige book, which is a summary of economic activity and conditions from the regional banks of the Federal Reserve Future, emphasized the “spread” uncertainty and deteriorating expectations.

These bad feelings have not yet been leaked to what economists call “difficult data”, which are the main economic measures that dictate the decisions of the Federal Reserve. A report of April’s stronger jobs is expected to the apparent flexibility of the American economy, which added 177,000 jobs instead of the 135,000 streets expected. At the same time, the unemployment rate remained unchanged at 4.2 %.

Although the Federal Reserve’s favorite inflation scale was 2.3 % in March, its lowest level since inflation has increased to the highest level in four decades in 2021-22, it remains 2 % higher than the central bank. Then there is a possible effect of Trump’s definitions.

Federal Reserve Chairman Jerome Powell acknowledged that the central bank will usually consider the price increase for one or “transition” from the high taxes on imports. However, in a speech last month at the Chicago Economic Club, he said that the recent Trump tariff would likely lead to high inflation and slower growth if it remains at its current levels.

“At the present time, we are in a good position to wait for more clarity before considering any amendments to our position on politics,” he said.

What will the Federal Reserve do the next time?

Powell’s comments hinted to the worst scenario of the so -called “stagnation”, when inflation rises, but unemployment also increases. Powell admitted that he would put the double “tension” in the federal reserve, as the central bank raises interest rates to fight high prices, but reduces stimulating economic activity.

“We still believe that the Federal Reserve will give priority to protect the labor market later this year, if the solid data is turning,” wrote Mike Sanders, head of fixed income at Madison Investments, in a note on Wednesday morning.

At a meeting on Wednesday, traders were seeking 98 % of the Federal Reserve rates of the Reserve Council, according to the Fedwatch tool for the CME group. The Federal Reserve Futures Futures put about 70 % a possibility on the central bank to do the same in June, and in two to four discounts by the end of the year.

“The set of customs tariffs is very march and cannot be predicted, so it will be unreasonable for the federal reserve to respond to the definitions when the situation can change significantly and their actions can lack intended effects or even a compound worse than the harmful effect,” Berijati wrote.

Powell also indicated that this type of commercial policy lacks a modern precedent. The general general tariff in the United States is now 28 %, and it is its highest level since 1901, according to Yale’s budget laboratory.

The Trump administration has sent mixed messages about the possibility of trade deals in recent weeks, but Treasury Secretary Scott Bessin and American Trade Representative, Jameson Jarir will meet with their Chinese counterparts this week. It is a preliminary step to cancel the reform tensions after the United States slapped a 145 % tariff for most goods from China, which prompted Beijing to take revenge with 125 % taxes on US imports.

Powell and Derrid have been repeatedly criticized by Trump, who was insisting on the desire to reduce borrowing costs for Americans. However, the President recently retracted the threats to launch the Fed Bank of Reserve, which disturbed investors amid fears that the independence of the central bank may be under his threat.

This story was originally shown on Fortune.com

2025-05-07 18:03:00