From Morningstar: 2025-05-08 11:33:00

The Federal Reserve is holding off on changing interest rates until the impact of tariffs becomes clearer. Rates have been kept steady at 4.25%-4.50% since last year’s cuts. Despite expectations of further cuts due to the pandemic, uncertainty around tariffs has delayed any decision.

Fed Chair Powell emphasized the need for clarity before making any changes. The economy was strong before the tariff shocks, with solid growth, a robust labor market, and slightly elevated inflation. The Fed expected to gradually lower rates to normal levels, but the uncertainty created by tariffs has complicated this plan.

The sudden imposition of tariffs has disrupted economists’ forecasts and raised questions about the future of monetary policy. Uncertainty surrounds both the policy response to tariffs and how the economy will react. The potential impact on GDP growth, unemployment, and inflation creates a dilemma for the Fed in balancing its mandate.

The US Fed faces a dilemma in deciding when to cut interest rates. The impact of tariffs on the economy is uncertain, with varying scenarios that could require the Fed to maintain high rates to combat inflation or make aggressive cuts to prevent a recession. Hard data on economic indicators will be crucial in shaping the Fed’s decision-making process.



Read more at Morningstar: When Will the US Fed Cut Interest Rates?