Federal Reserve maintains interest rates as risks loom

By MG News | May 08, 2025 at 09:19 AM GMT+05:00
May 08, 2025 (MLN): The Federal Reserve left interest rates unchanged as growing risks to economic growth and higher inflation leave the central bank rooted in its wait-and-see approach until the fog around the impact of the Trump administration’s tariffs is lifted.
The Federal Open Market Committee, the FOMC, left its benchmark rate unchanged in a range of 4.25% to 4.5%.
The lack of urgency from the central bank to adjust its benchmark rate comes in the wake of a slew of tariffs rolled out by the Trump administration that has muddied the economic outlook.
These tariffs also threaten to slow growth and boost inflation—two dynamics that could potentially put the central bank’s goals of stable inflation and maximum employment on a collision course.
"The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen," the Fed said.
The Fed’s acknowledgement of growing risks to its dual mandate -- stable inflation and maximum employment -- drew a brief negative reaction in markets as stocks slipped and Treasury yields rose.
"We think the statement was slightly hawkish versus expectations. The Committee did not acknowledge slowing in the economy," Morgan Stanley said following the decision.
Clarity on the tariff front isn’t expected soon.While the Trump administration has teased upcoming trade deals as it pursues its country-by-country negotiation plan, there is no sign that the U.S. and China are making progress to undo the damaging levies they have imposed on each other.
On the heels of the Fed decision, President Donald Trump said Wednesday that he wasn’t open to pulling back on the 145% tariffs imposed on Beijing, as Reuters reported.
As brinkmanship on trade between the U.S. and China looks set to continue, economists expect the Fed will have limited room to maneuver on the monetary policy front.
At the press conference that followed the rate decision, Federal Reserve chair Jerome Powell acknowledge that the Fed will persist with its wait and see approach until there is uncertainty on the impact of tariffs eases.
"The costs of waiting to see further are fairly low," Powell said.
The Fed chief signaled that it could take a while until there is more certainty on the trade front.
"I can’t tell you how long it will take, but for now, it does seem like it’s a fairly clear decision for us is to wait and see and watch," he added.
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