Federal Reserve Keeps Key Rate Steady Amid Tariff Uncertainty

The Federal Reserve kept its key interest rate steady this week, citing the need for more information on how tariffs and other potential disruptions will affect the economy. While Fed policymakers still expect to cut rates twice this year, they project inflation to rise due to President Trump's import duties. The Fed also expects economic growth to slow and unemployment to edge up, according to their released projections.

Key Takeaways:

• The Fed kept its key interest rate steady at 4.3%, citing the need for more information on the impact of tariffs and other disruptions.
• Fed policymakers still expect to cut rates twice this year, but project inflation to rise due to Trump's import duties.
• The Fed expects economic growth to slow to 1.4% this year, down from 2.5% last year, and unemployment to edge up to 4.5%.
• Inflation has cooled steadily since January, but Fed Chair Jerome Powell expects tariffs to reverse that progress and push inflation higher in the coming months.
• The Fed sees the inflation bump as temporary, but wants to see more data to be sure.
• The impact of tariffs on the economy is still unknown, with Powell stating that "Increases in tariffs this year are likely to push up prices and weigh on economic activity."
• George Pearkes, global macro strategist for Bespoke Investment Group, believes the Fed won't cut rates until September at the earliest, based on the data provided.
• Wall Street investors currently expect the Fed to cut rates in September, according to futures prices tracked by Bloomberg.
• Fed officials expect inflation to rise to 3% by the end of this year, from 2.1% in April, according to the projections released.
• Claudia Sahm, chief economist at New Century Advisors, believes the projections show that policymakers do expect inflation to come down in 2026 and 2027.
• Trump has repeatedly criticized Powell and the Fed, calling him "stupid" and accusing him of being "political" for not cutting rates.
• Trump has shifted his focus to the federal government's borrowing costs, which have shot higher since the pandemic.

Statistics:

• Current key interest rate: 4.3%
• Expected inflation rate by end of 2025: 3%
• Unemployment rate: 4.2%
• Expected unemployment rate by end of 2025: 4.5%
• Economic growth rate this year: 1.4%
• Growth rate last year: 2.5%
• Interest payments on federal debt: over $1 trillion annually

Sources:

• Washington AP
• Bloomberg
• Bespoke Investment Group
• New Century Advisors
• The Associated Press
• Bank of England
• European Central Bank
• Bank of Canada
• Bank of Japan