Federal Reserve decides to maintain current interest rates amidst President Trump's criticism
In a chatty confab with the press, Powell, the Fed big spender, shared his thoughts on how tariffs might influence the central bank's decisions concerning interest rates. He mentioned that a few more months of data collection would help the Fed make more informed choices, hinting a potential slowdown in rate adjustments.
Amidst growing division within the Fed if rate cuts might even occur in 2025, Powell expects to gather more insights over the summer. The Fed kept its benchmark lending rate at a snug 4.25% to 4.50% after its bi-annual meet, planning two potential reductions for this year, in line with earlier predictions.
Yet, there seemed a discordant chorus among participating officials, with a more modest crew anticipating as many as two rate decreases in the near future.
There's been a flurry of criticism from Trump, who persistently badgers the Fed for rate cuts. In a vituperative outburst on his social platform, Truth Social, heipse that Powell is a blunderhead costing the country billions due to his incompetence.
Powell, however, keeps a cool head and stated that the Fed's current position allows it to wait and assess the situation more thoroughly before indulging in any major moves.
The Fed's stance was as anticipated by analysts, with financial forecasters such as Diane Swonk from KPMG envisioning no rate adjustments before September. Investors were left unaffected by this intel, with US stock indices closing almost unchanged on the day of the announcement.
Economist Ryan Sweet from Oxford Economics shared that the Fed wouldn't lower rates until inflation is back to its 2% target and suggested that preemptive cuts aren't on the table.
Swonk, however, opined that the absence of tariff-induced inflation could encourage the Fed to cut rates now if it weren't for the tariffs.
According to the Fed's latest estimates, they expect 1.4% economic growth for 2025, a downgrade from their earlier projection of 1.7%. Their inflation prognosis has also increased to 3.0%, and the unemployment rate is tipped to reach 4.5%.
When asked about the escalating conflict in the Middle East, Powell wasn't concerned about higher energy prices affecting inflation in a substantial way.
Trump has often pointed to low inflation as a rationale for rate cuts. More recently, he propounds that lowering rates could lower the country's interest payments on maturing debt. Nevertheless, Powell underscores that the Fed makes decisions purely based on objective analysis, free from political interference.
Related factors:
- Higher tariffs can prompt inflation by raising the cost of goods, affecting the overall price level
- Consumer spending can diminish if prices escalate due to tariffs, slowing economic growth
- Job growth might decline if businesses experience increased costs or reduced demand due to tariffs, potentially leading to layoffs
- The Fed maintains a wait-and-see approach, focusing on how tariffs impact inflation, spending, and hiring before adjusting interest rates
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- The ongoing disagreement within the Fed about potential rate cuts in 2025 might intensify, as some analysts anticipate that the absence of tariff-induced inflation could encourage the central bank to lower interest rates earlier than anticipated.
- The Fed's decision to maintain a wait-and-see approach regarding interest rate adjustments considers the potential impact of tariffs on inflation, consumer spending, and employment.
- While the general public and political figures like Trump advocate for rate cuts to lower interest payments on maturing debt and counteract tariff-related inflation, Powell stressed that the Fed's decisions are based purely on objective analysis, free from political interference.
