The Federal Reserve decided to keep its key interest rate steady on Wednesday (May 7), maintaining the current range of 4.25% to 4.5% as it evaluates the economic impact of President Donald Trump‘s tariffs. This decision marks the third consecutive meeting where rates have remained unchanged, reflecting the Fed’s cautious approach in response to ongoing trade tensions and economic fluctuations.
The Federal Open Market Committee’s statement highlighted increased uncertainty in the economic outlook, noting the dual risks of higher unemployment and inflation. These concerns stem from the tariffs imposed by the Trump administration, which threaten to both elevate prices and slow economic growth.
The U.S. economy contracted by 0.3% in the first quarter, influenced by slower consumer spending and a surge in imports ahead of the tariffs. Despite this, the Fed noted that economic activity has continued to expand at a solid pace, with job growth remaining stable. Nonfarm payrolls increased by 177,000 in April, and the unemployment rate held at 4.2%.
Inflation has been approaching the Fed’s 2% target, but tariffs are expected to cause a temporary rise in prices. President Trump has advocated for rate cuts, arguing that inflation has eased, but the Fed remains focused on its dual mandate of full employment and stable prices.
As the Fed navigates these challenges, investors are keenly awaiting Powell’s remarks for insights into future rate decisions. The central bank’s cautious stance reflects the complex economic landscape shaped by trade policies and their potential impact on growth and inflation.
Recent Comments