The Fed holds interest rates steady again as trade tensions heat up
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- The Federal Reserve held interest rates steady for the fourth time in 2025.
- Powell has signaled the Fed is waiting to see the impacts of Trump's tariffs before cutting rates.
- The FOMC penciled in two interest-rate cuts for 2025, depending on economic conditions.
America's interest rates will hold steady once again — and the Fed is keeping a close eye on President Donald Trump's trade war.
In line with forecasts, The Federal Open Market Committee announced Wednesday that it will not cut rates, holding for the fourth time this year. The decision comes as Trump's quick-changing tariff policies with top trade partners have spooked businesses and investors for the past several months. CME FedWatch, which anticipates interest-rate changes based on market moves, had projected a 99% chance of steady rates in June.
Fed Chair Jerome Powell has expressed concern that Trump's trade plans will negatively impact US companies and consumers, and said that the central bank is waiting to see the clear impact of these policies before making a rate-cut decision.
In its quarterly release of economic projections, the Fed still penciled in two cuts for this year, but when (and if) those cuts occur depends on economic conditions. The call to keep rates at steady this month comes alongside a modest rise in inflation. The year-over-year inflation rate ticked up in May to 2.4% from 2.3%, a figure lower than expected but still above the Fed's 2% goal. Wednesday's projections show the Fed's outlook has worsened since March, notably that expectations for inflation and unemployment have risen, and forecasts for GDP have declined.
Unemployment is low and the US added jobs last month, but the labor market is slowing due to low quit and job vacancy rates. Soft data indicators, like the University of Michigan's consumer sentiment index, have fluctuated in recent months, further indicating that Americans are feeling the heat of high prices and tariff whiplash. And major events — like Israel's attack on Iran last week — could also impact inflation rates and the price of in-demand resources like oil going forward.
The president has repeatedly pushed for the Fed to lower rates sooner rather than later: "'Too Late' Jerome Powell is a FOOL, who doesn't have a clue. Other than that, I like him very much!" Trump wrote in a May 8 Truth Social post. "Oil and Energy way down, almost all costs (groceries and 'eggs') down, virtually NO INFLATION, Tariff Money Pouring Into the U.S."
Following a meeting with Trump at the end of May, Powell said in a statement that, "he and his colleagues on the FOMC will set monetary policy, as required by law, to support maximum employment and stable prices and will make those decisions based solely on careful, objective, and non-political analysis."