Fed Holds Rates Steady Despite Trump Tariff Pressure \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ The Federal Reserve left its key interest rate unchanged at 4.3%, despite pressure from President Trump to cut rates. Rising inflation and unemployment risks from new tariffs have created deep uncertainty about future Fed policy. The central bank signaled it may wait to act until clearer economic signals emerge.
Quick Looks
- Federal Reserve keeps interest rate at 4.3%, third straight pause in policy.
- President Trump urged rate cuts, but Fed cited economic risks from tariffs.
- Inflation and unemployment both seen as rising risks, an unusual pairing.
- Fed Chair Jerome Powell said tariffs could trigger slower growth and price hikes.
- Central bank taking a “wait and see” approach due to trade policy volatility.
- Trump imposed 145% tariffs on China, with other duties paused for now.
- CBO and private firms warn of higher inflation in coming months.
- Businesses are delaying investments and pulling 2025 forecasts due to uncertainty.
- Powell insisted Fed decisions are based on data, not politics.
- Wall Street analysts now expect rate cuts delayed until late 2024.
Deep Look
In a highly anticipated move that underscores the complex crossroads between monetary policy and political pressure, the Federal Reserve opted to leave its benchmark interest rate unchanged at 4.3%, maintaining a cautious stance amid mounting economic uncertainty and rising tensions with President Donald Trump. This marks the third straight meeting in which the Fed has chosen not to raise or cut rates, despite persistent lobbying by the president and his economic team to stimulate the economy with lower borrowing costs.
The Fed’s decision comes at a time when the U.S. economy faces a rare dual threat: the possibility of both rising inflation and increasing unemployment, driven largely by Trump’s aggressive tariff strategy. In April, the administration imposed sweeping duties on goods from over 60 trading partners, with a 145% tariff on Chinese imports still in place. These policies have introduced unprecedented uncertainty for businesses and policymakers alike.
Powell: Inflation and Employment Risks Have Grown
Fed Chair Jerome Powell, during a press conference following the announcement, made it clear that the central bank is walking a tightrope. “If the large increases in tariffs that have been announced are sustained,” he said, “they’re likely to generate a rise in inflation, a slowdown in economic growth, and a rise in unemployment.” Powell emphasized the uncertainty surrounding the economic outlook, saying the Fed must “wait and see” how the data evolves before adjusting policy.
This is a departure from the typical playbook. Normally, the Fed tightens rates to control inflation or eases them to reduce unemployment. Now, the two risks are rising simultaneously, forcing the Fed to adopt a neutral, reactive position rather than a proactive one.
The central bank’s dual mandate—to ensure price stability and maximize employment—has rarely been under such simultaneous strain. If inflation continues to rise due to higher import prices, the Fed would normally consider tightening policy. But if the job market weakens as companies lay off workers to offset rising costs, that would argue for a rate cut. Powell admitted the Fed’s next steps would depend heavily on which of these trends emerges more strongly.
Political Tensions Escalate
Meanwhile, Trump continues to pressure the Fed publicly. In a recent interview, the president said Powell “just doesn’t like me because I think he’s a total stiff,” and renewed his call for interest rate cuts. Trump has made clear he believes lower rates would shield the U.S. economy from the damage his tariffs might inflict and boost growth.
Still, Powell stood firm: “(Trump’s comments) don’t affect doing our job at all,” he said. “We’re always going to consider only the economic data, the outlook, the balance of risks, and that’s it.”
Despite Trump’s claims that inflation is under control, the Fed remains wary. Inflation expectations—the public’s belief about where prices are headed—are a key factor. If consumers expect inflation to rise, they may take steps that actually fuel it, such as demanding higher wages, raising costs across the board.
Already, business surveys reflect the impact of tariffs. According to the Federal Reserve Bank of Dallas, 55% of manufacturers plan to pass increased costs on to consumers. Service-sector firms are also reporting higher supplier costs, which often trickle down to retail prices. This indicates a wave of price increases may be coming in the second half of the year.
At the same time, businesses are showing signs of stress. Many companies have put hiring and investment plans on hold, awaiting clarity on trade policy. Several large corporations have even withdrawn their 2025 earnings forecasts, citing tariff-related unpredictability. This stagnation adds weight to fears of a possible slowdown in economic growth or even a recession.
Wall Street: Don’t Expect a June Rate Cut
Investors who were once betting on a June rate cut are now recalibrating. According to Krishna Guha of Evercore ISI, the Fed’s tone suggests any action is unlikely before the fall. “The combination of the two-sided risk assessment and the characterization of the economy as solid suggest the Committee is not looking to tee up a June cut at this juncture,” he said.
Now, economists and market watchers broadly expect the Fed to delay any cuts until September or later, depending on whether inflation accelerates, hiring slows, or geopolitical factors shift.
Fed Caught in the Crossfire of Trade and Politics
The Fed’s current dilemma illustrates the far-reaching effects of trade policy on monetary strategy. Trump’s decision to impose tariffs may have short-term political appeal, especially with his base, but they are distorting price signals, creating supply chain disruptions, and adding cost pressures that the Fed is tasked with managing.
Further complicating matters is the upcoming U.S.-China trade meeting in Switzerland, the first high-level diplomatic contact since the latest tariffs were introduced. The outcome of these talks could dramatically reshape the economic outlook. A breakthrough might calm inflation fears, while a breakdown could escalate the trade war, spook markets, and force the Fed into a defensive stance.
Powell reiterated that the central bank remains independent and focused on data, even as political rhetoric heats up. Still, if inflation spikes or jobs are lost in large numbers, the Fed may be forced to act sooner than expected—even if it risks appearing reactive to political pressure.
What This Means for Americans
For consumers, the Fed’s decision means interest rates on mortgages, car loans, and credit cards will remain high for now. That could weigh on household spending, especially as prices for goods rise due to tariffs. If a rate cut does come later in the year, it may offer modest relief—but only if inflation doesn’t spiral out of control in the meantime.
The broader message is clear: the economy is in a fragile equilibrium, caught between a strong labor market and rising cost pressures. The Fed is watching closely, but with limited room to maneuver, its next steps will depend entirely on how this delicate balance evolves.
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