Fed holds rates steady at 4.5%, citing rising economic uncertainty from President Trump’s tariffs. Although the Fed acknowledges that the economy is functioning well at the moment, its projections for inflation and GDP growth raise significant concerns.
Economic Prospects and Concerns about Stagflation
- GDP Growth: The Fed reduced its 2025 growth estimate from 2.1% in December to 1.7%.
- Inflation: The Fed’s 2% target is anticipated to be exceeded by a key inflation indicator that hovers around 3%.
- Unemployment Rate: By the end of the year, Fed policymakers anticipate that the unemployment rate will have increased to 4.5%.
Trump Tariffs and Inflation Impact
Fed Chair Jerome Powell addressed the uncertainty surrounding the impact of Trump’s tariff policies. While acknowledging that tariffs could push inflation higher, Powell referred to these increases as possibly “transitory.” However, market fears of stagflation—where inflation rises while growth slows—have emerged.
Investor Responses
Stocks rose after the Fed’s pronouncement, and as investors turned to safer assets, bond buying rose as well. For the first time in three years, the S&P 500 has moved into correction territory, indicating market apprehension regarding Trump’s economic policies.
What Will Happen to Interest Rates Next?
Fed holds rates steady, signaling two rate cuts in 2025 despite ongoing economic uncertainty. Given the ongoing inflationary pressures, analysts continue to debate whether the Fed will take action on this projection.
According to economic analysts, the Fed will continue to take a “wait and see” stance, keeping an eye on economic statistics before taking any more action. Inflation data and job reports will be the next major announcements.
Source: NBC News
