Central banks will hold steady in the economic uncertainty driven by tariffs.
The US Federal Reserve has dismissed President Donald Trump’s demands to maintain interest rates without changing and reduce borrowing costs, saying it is rising risk of unemployment and inflation.
The central bank maintained its benchmark rate at 4.25%, bringing its first benchmark rate to 4.5% since December after three consecutive cuts at the end of last year. The vote to maintain a stable fee was unanimous.
In a statement, the Fed said that “even increased uncertainty about the economic outlook” as it justified consistency despite pressure from the White House.
While many economists and Wall Street investors still hope that the Fed will cut its fees a few times this year, the drastic tariffs imposed by Trump have injected enormous amounts of uncertainty into the US economy and Fed policies.
It’s rare for the Fed to say that both price and unemployment risk is increasing. But economists say it is a threat created by Trump’s drastic tariffs. Import taxes can increase inflation by making imported parts and finished products more expensive, while also increasing unemployment rates by reducing employment as costs increase for businesses.
Overall, the economy is “continuing to expand at a robust pace,” the Fed said in a policy statement that it recorded imports to record a decline in first quarter output as businesses and households rushed to the latest new import taxes.
The Fed said it was “strongly committed to supporting the largest employment and bringing inflation back to its 2% target.”
The Fed said one of the drivers behind its decision was the state of the labor market and “inflationary pressures and expectations of inflation, and financial and international development.”
In an employment report released last week, the U.S. Labor Bureau showed that 177,000 jobs have been added to the US economy in line with growth levels over the past 12 months. However, the report was about employment before “Liberation Day” when Trump announced his sweeping tariff policies. A more direct metric, the ADP Jobs Report, showed employment growth at 62,000.
Fed Chairman Jerome Powell said at a press conference after the interest rate decisions that leaving interest rates would remain in a good position for the central bank to respond.
“For the time being, we are well positioned to wait for more clarity before we consider adjusting to policy stance,” Powell told reporters. “It’s still a healthy economy, but it’s surrounded by the very downbeat emotions of people and some businesses,” he added.
“The Fed’s statement was an obvious statement. They gave the threat to growth and inflation roughly equal airtime, so we’re telling you that before we can see how data will shake up between the current and June meetings, we need to decide whether to prioritize maintaining inflation expectations or address the blow to growth.”
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