WASHINGTON – The Federal Reserve on Wednesday did not change key interest rates as the Trump administration’s trade policy waits for it to shape and affect the sputtering economy.
In a move that has taken a large pause in light of the waves of uncertainty that cleans up the political and economic landscape, the Federal Open Market Committee benchmarked overnight borrowing rates in the range of 4.25% to 4.5% since December.
The post-meeting statement focused on volatility and how it takes into account policy decisions.
“Uncertainty about the economic outlook is growing even more,” the statement said. “The committee is paying attention to risks on both sides of the dual mission and is making judges that the high risk of unemployment and the rising inflation rate.”
However, the statement did not specifically address tariffs, but Chairman Jerome Powell addressed the issue at a later press conference.
The stocks temporarily allocated profits after the rates were announced, but most have recovered. The Dow Jones Industrial Arage has increased nearly 300 points despite some concerns about characterizing the Fed’s economic risks.
“The May FOMC statement warns that despite efforts by the Trump administration, a massive trade shock is still set to hit the economy. “The net impact on risk assets is negative.”
Amid President Donald Trump’s push for tariffs, it has recently become more difficult to find a balance between the two elements of the Fed’s so-called double mission, between full employment and stable prices.
The statement raises the possibility of a stag scenario that barely exists in the United States since the early 1980s, as it focuses on slow economic growth, just as tariffs threaten to exacerbate inflation.
Policymakers have largely agreed that central banks are in a good position and that the economy is generally maintained, so they will be patient in adjusting monetary policy.
The Fed’s deliberations come as the White House is locked in negotiations with top US trading partners during the 90-day negotiation period that began in early April. Trump slapped 10% of tariffs over 10% on US imports, threatening other individual “mutual” obligations pending, with ongoing consultations threatening.
As almost a day’s headline measures the trade war, the economy is flashing conflicting signals about growth, inflation, consumer and business sentiment.
Gross domestic product, the broadest measure of economic performance, fell 0.3% in the first quarter. This led to slower spending by consumers and governments, and imports surged ahead of tariffs. Most Wall Street economists expect the economy to grow aggressively in the second quarter.
A statement from FOMC noted that “net export swings have affected the data,” and described the recent characterization as “the economy is “continuing to expand at a robust pace.”
Certainly, despite Trump’s efforts to curb the federal workforce, employment growth is still in place. Non-farm payroll increased 177,000 in April, unemployment rates held at 4.2%, with room for the Fed to breathe if further economic slowdown is expected.
Inflation is ticking by the moment, approaching the Fed’s 2% target, but tariffs are expected to bring about at least one price increase. Trump pushed the Fed to cut interest rates as inflation eased. Central bank priority gauges showed headline inflation of 2.3%, or 2.6%, in the food and energy excluded core.
But like all aspects of the economy, it all depends on what happens at tariffs.
Along with softening from the administration, recent indications of progress in negotiations have helped to overturn the sale of the huge stock market after Trump’s announcement of the April 2nd “liberation day.” However, business research shows high levels of anxiety, with most managers reporting concerns about pricing from supply and tariffs.
Market prices for the Fed’s actions are also unstable.
Heading to the meeting, pricing showed that there was little chance of cutting this week, and that there was less than 30% chance of moving in June. Traders have priced three total cuts this year, but could change following Wednesday’s decision.
The committee’s decision to stabilize the benchmark rate was unanimous. The Fed fund ratio is used by banks for overnight loans, but also supplies other consumer debts, such as mortgages, car loans and credit cards.
