Washington (AFP) – The US Federal Reserve on Wednesday announced another rate cut pause and warned of higher risks to its inflation and unemployment goals, likely referencing President Donald Trump’s tariffs. Policymakers voted unanimously to hold the US central bank’s key lending rate at between 4.25 percent and 4.50 percent, the Fed said in a statement.
The bank has a dual mandate to act independently to tackle inflation and unemployment, primarily by hiking, holding, or easing its benchmark lending rate. The Fed stated that “swings in net exports” did not appear to have affected solid economic activity—a nod to the pre-tariff surge in imports in the first quarter ahead of the introduction of Trump’s “liberation day” tariffs. The US president introduced steep levies last month on China, along with lower “baseline” levies of 10 percent on goods from most other countries, sparking weeks of turbulence in the financial markets. The White House also imposed higher tariffs on dozens of other trading partners and then abruptly paused them until July to give the United States time to renegotiate existing trade arrangements.
Data published in recent weeks point to an economic contraction in the first quarter of the year, while the unemployment rate has hovered close to historic lows, and the inflation rate has trended towards the Fed’s long-term target of two percent.
Fed Chair Jerome Powell will likely try to make “very little news” during his regular press conference later Wednesday, Nationwide Chief Economist Kathy Bostjancic told AFP ahead of the rate decision. Powell is expected to face additional questions about the Trump administration’s support for his leadership of the independent central bank, given public criticism from senior government officials—including the president.
“He should lower them,” Trump said of Powell and the interest rates in an interview published over the weekend, repeating his past criticism of the Fed chair while insisting he had no plans to try to fire him before his term ends next year. “By commenting publicly on what the Fed should do, they potentially undermine…the public’s perception of the institution’s commitment to price stability,” former Fed economist Rodney Ramcharan wrote in a note shared with AFP.
“If the Fed were to cut rates, markets could perceive that decision as ‘political’ rather than a reaction to actual economic conditions,” added Ramcharan, now a professor of finance and business economics at the USC Marshall School of Business. Looking ahead, analysts have in recent weeks pared back or delayed their expectations of rate cuts, predicting that tariffs will push up prices and slow growth—at least in the short run.
“It seems highly unlikely that the Fed will receive a clear enough signal to act by the June meeting, since the 90-day pause on ‘reciprocal’ tariffs lasts through 8 July,” economists at UniCredit wrote in a recent note to clients. They added that they do not expect a rate cut before September. “The outlook for Fed policy remains very uncertain, but we have pushed back the first of the three consecutive 25bp (basis points) insurance cuts in our baseline forecast from June to July,” Goldman Sachs chief economist Jan Hatzius wrote in a recent investor note.
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