From Yahoo Finance: 2025-05-07 14:03:00

The Federal Reserve has not changed interest rates in 2025, opting for a “wait-and-see” approach after President Donald Trump’s tariffs. They kept the federal funds rate between 4.25% and 4.5%, awaiting more clarity on the economy amidst trade policy changes. Uncertainty has led to fears of stagflation, with risks of higher unemployment and inflation increasing.

Despite market turmoil from Trump’s tariffs, recent economic data remains strong. A stronger-than-expected April jobs report showed the U.S. added 177,000 positions, highlighting the apparent resilience of the economy. However, inflation remains above the Fed’s target at 2.3%, raising concerns about the impact of tariffs on future growth.

Fed Chair Jerome Powell acknowledges potential inflation from tariffs but is waiting for more clarity before adjusting policy. The possibility of stagflation, with rising inflation and unemployment, presents a challenge for the Fed. Powell has hinted at prioritizing labor market protection, depending on future economic data and the impact of tariffs.

Traders largely expected the Fed to maintain rates in the face of uncertainty. Fed funds futures predict no changes in June and anticipate two to four cuts by year-end. The fluid and unpredictable tariff situation complicates the Fed’s ability to respond effectively. Powell notes the lack of modern precedent for current trade policy.

Mixed messages from the Trump administration on trade deals have led to tensions with China. Treasury Secretary Bessent and U.S. Trade Representative Greer will meet with Chinese officials to potentially ease trade tensions. While Trump has criticized the Fed for not lowering borrowing costs, he has backed off threats to fire Powell, easing concerns about the central bank’s independence.



Read more at Yahoo Finance: Federal Reserve doesn’t budge on interest rates as Trump tariff uncertainty still reigns