Federal Reserve Hold Interest Rates Steady
On Wednesday 17th June, and for the fourth straight meeting, the FOMC (Federal Open Market Committee) announced that benchmark interest rates will remain steady at 4.25% – 4.50% with policymakers voting unanimously for the hold, but also indicating that borrowing costs will probably fall between now and the end of the year. However, Federal Reserve Chairman Jerome Powell reiterated along with the FOMC statement that policymakers will wait and see how economic data evolves moving forward.
The FOMC also released a new set of economic forecasts being the first set of forecasts since President Donald Trump announced his tariff programme on April 2nd this year famously referring to them as Liberation Day. The FOMC’s forecasts show that for the rest of 2025 they expect higher unemployment, weaker growth, and higher inflation, thus by years end unemployment will be slightly up from the previous estimate to 4.5%, economic growth will be at 1.4% down from 1.7%, and inflation at 3% up from 2.7%.
Experts suggest that the Federal Reserve is in a bit of a quandary with higher inflation suggesting an increase in interest rates whilst falling growth suggests a lowering of interest rates to stimulate the economy. President Trump has persistently said the Federal Reserve should lower interest rates and even before the announcement yesterday President Trump referred to Chairman Powell as stupid. However, officials from the Federal Reserve do expect upward pressure on prices as the expanded use of tariffs by President Trump begin to weigh on economic activity.
Analysts suggest that so far the economy of the United States has proved resilient, as in recent months unemployment has held steady and inflation has risen less than expected. However, Chairman Powell has added that officials are beginning to see some effects from tariffs with more to come over the next few months but he did re-emphasise the Federal Reserve’s commitment to ensure price pressure does not become more persistent. Many experts in the financial markets have forecasted a meaningful rise in inflation but Chairman Powell countered with “the jobs market is not crying out for a rate cut” whilst adding that tariffs are an unavoidable cost increase to consumers and businesses.
Chairman Powell’s take on tariffs is that the United States Economy has not yet seen the full effects of tariffs on prices for consumers and has confirmed the Federal Reserve will hang tight until data gives us a better idea of what’s going on. As part of his post-meeting conference with the media he said, “for the time being we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policies”.
That said, experts within the financial markets have said that according to interest rate futures they see a more than 70% chance of a rate cut in September, however some economists suggest that it will take until then to at least see the impact of all of the administrations policies on immigration, spending and the impact on trade. They are therefore at odds with those in the financial markets proving that as tariffs and Donald Trump have become central to the Federal Reserve’s thinking.
