The Fed said Wednesday it kept its benchmark interest rate unchanged, resisting pressure from President Trump to reduce U.S. borrowing costs as policymakers assess the economic impact of their trade policies.
The Fed said it will keep the federal funds rate at its current 4.25% to 4.5% since the last time the central bank moved to short-term interest rates in December.
Federal Funding Rates - Fees charged by banks for short-term loans - helps determine the interest paid by businesses and consumers on loans and credit card debts.
The Fed's dual task of maintaining a healthy job market while maintaining low inflation rates, said Wednesday that economic risks are rising.
Federal Reserve Chairman Jerome Powell talked about the central bank's decision at a press conference that tariffs on Mr. Trump could drive inflation and unemployment to stimulate both higher inflation and unemployment. But Powell noted that despite sharp declines in consumer and business sentiment, the impact of Mr. Trump’s tariffs has not yet been realized in tough economic data.
"We already think that higher inflation and unemployment risks have risen since the last Fed meeting in March," Powell said. However, he added: "We can't say which way this will get rid of."
Powell added that central banks want to adopt a treatment approach due to uncertainty over the economic path under the Trump administration’s trade policy. He noted that at the current level of the benchmark, the Fed has flexible reduction rates if unemployment rises or inflation is raised due to the impact of Mr. Trump’s tariffs.
Meanwhile, Powell noted that there are concerns that the Fed may face a tight situation with a double mandate, which could happen if inflation and unemployment are fueled at the same time. In this case, central banks will need to focus on which side of the mandate is the farthest from the Fed's goal and prioritize taming that part of the economy.
"It will be a complex and challenging judgment that we have to make," Powell said, adding: "If these two goals are in a state of tension - if unemployment is uncomfortable, so are inflation, we will look at their distance from the Fed's target and focus first on economic issues that are under greater stress.
Wall Street interprets Powell's comments as suggesting that the U.S. economy may fall into stagnant water or the risk of a combination of economic growth and higher inflation.
“The Fed still believes the economy is on a solid foundation, but recognizes both sides of its mandate and inflation risks due to tariffs,” Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said in an email. “As the risk of stagnation rises, the Fed’s communications will emphasize patience until the data has sufficient clarity.”
The Fed kept rates stable under pressure from Mr. Trump, and the president wrote on social media last month that the central bank was “too late and wrong” to postpone further reductions.
Paul Ashworth, chief economist at North American economics, said the latest Fed statement did not provide clues about when to consider easing monetary policy.
"We continue to expect that the Fed will keep interest rates unchanged this year as tariffs may cause moderate GDP growth to around 1.5%," he said in a note.
Economists predict Mr. Trump's tariffs will increase inflation later this year. Despite inflation Cooling in March.
Given the softer inflation and buoyancy job market, most economists have projection The Fed will maintain interest rates at today's meeting, despite some headwinds (such as erosion) Consumer confidence and sharp decline First quarter The U.S. economy is growing.
"It's the Fed that is still in holding mode while waiting for the uncertainty to clear," said the CIO of Goldman Sachs Asset Management's public investment in an email after the Fed's announcement.
Shah added: "Recently better, better work data support the Fed's lasting stance, and the responsibility in the labor market is to weaken enough effort to restore its easy cycle."