The Federal Reserve held interest rates steady at their target range of 4.25% to 4.5% during its recent meeting, signaling caution amid ongoing economic uncertainties.
Why it matters: Despite calling for two rate cuts this year, policymakers are wary of higher inflation and have revised their outlook for gross domestic product downward.
The details:
- Federal Reserve Chair Jerome Powell emphasized that policymakers are “well positioned to wait” before making further adjustments to rates.
- Powell noted the persistent robustness of the labor market, stating, “The U.S. economy has defied all kinds of forecasts for it to weaken over the last three years, and it’s been remarkable to see this sustained strength.”
- The impact of tariffs on prices remains a significant concern for the Federal Reserve, with Powell warning that tariffs tend to be an unavoidable cost for businesses and consumers.
- The Fed’s decision to hold rates indicates a short-term focus on rising inflation attributed to tariffs, according to Byron Anderson, head of fixed income at Laffer Tengler Investments.
Powell also highlighted the uncertainty surrounding future rate paths, noting that no one holds rate projections with great conviction due to the highly fluid macroeconomic environment.
What they’re saying:
- “The Fed seems obsessed with tariff inflation and is willing to sacrifice employment and GDP growth before changing this stance,” commented Byron Anderson.
- Greg McBride from Bankrate pointed out, “Borrowing rates are high, with mortgage rates near 7%, home equity lines of credit in double-digit interest rate territory, and the average credit card rate still above 20%.”
The other side: Savers benefit from high yields on savings accounts and certificates of deposit.
What’s next: The central bank remains prepared to adjust its policies as new economic data emerges, with an eye on the longer-term inflation target.