The Federal Reserve maintained interest rates within the target range of 4.25% to 4.5%, signaling a cautious approach amidst economic uncertainty and inflationary pressures.
Why it matters: The Fed’s decision highlights the balancing act between addressing inflation driven by tariffs and supporting broader economic growth.
The details:
- Fed Chair Jerome Powell emphasized that policymakers are “well positioned to wait” before making further rate adjustments.
- Powell noted the sustained strength in the labor market but acknowledged concerns about tariffs being passed on to consumers through higher prices.
- The Fed expects to see more effects of tariffs on consumer prices over the coming months.
- Longer-term inflation expectations remain aligned with the Fed’s 2% goal, despite a recent uptick driven by tariffs.
What they’re saying:
- “A meaningful increase in inflation from tariffs is expected in the coming months as the cost will ultimately fall on consumers,” said Powell.
- “The Fed seems focused on keeping tariff inflation low, even if it means sacrificing some employment and GDP growth,” commented Byron Anderson, head of fixed income at Laffer Tengler Investments.
- Goldman Sachs’ Simon Dangoor suggested that a path to rate cuts could emerge if the labor market weakens.
- “Borrowing rates remain high, affecting mortgage rates, home equity lines of credit, and credit card rates, but savers benefit from inflation-beating returns on savings accounts,” noted Greg McBride, chief financial analyst at Bankrate.
The outlook: The Fed projects two rate cuts by the end of 2025, with revised year-end inflation projection increased to 3% and economic growth expected to slow to 1.4%.
The bottom line: The Federal Reserve’s steady approach underscores the challenges of balancing tariff-induced inflation with broader economic growth in an uncertain landscape.