As expected, the Fed decided to keep its policy rate steady for the fourth consecutive time this year. Following the regularly scheduled two-day meeting of the Federal Open Market Committee (FOMC) that concluded on Wednesday, Fed chairman Jerome Powell announced that the target range for the federal funds rate would be kept at 4.25 to 4.50 for the time being, saying that it was still too early to predict the tariff impact on prices and the economy and that the committee felt well-positioned to continue to wait and see.
"Changes to trade, immigration, fiscal and regulatory policies continue to evolve, and their effects on the economy remain uncertain," Powell said. "The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity."
The Fed has now kept the federal funds rate at its current target range since December, when the FOMC made the last in a series of three consecutive cuts that brought its policy rate down a full percentage point in four months. While Powell and his colleagues are in no rush to abandon their current wait-and-see position, President Donald Trump has been asking for rate cuts for weeks, claiming that there is "virtually no inflation" and that lowering interest rates would be "like jet fuel" for markets. On Thursday, he called Jerome Powell "a real dummy" on social media, while Vice President JD Vance described the Fed's decision not to cut rates as "monetary malpractice."
In his press conference following the meeting, Powell acknowledged that the Fed may find itself in a difficult spot soon, as it expects tariffs, depending on how high they'll end up, to generate a rise in inflation and an increase in unemployment. To keep inflation in check, the Fed would have to raise rates, while an increase in unemployment would usually call for rate cuts. "We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension," Powell said. "If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close," he added, deviating from last month's statement, when he suggested that the Fed would likely prioritize keeping inflation in check and described price stability as a prerequisite for strong labor market conditions.
