The Federal Reserve has kept interest rates unchanged for the fourth consecutive time, maintaining its benchmark lending rate at approximately 4.3%. This decision comes despite forecasts from policymakers suggesting slower growth, higher unemployment, and faster inflation than previously expected. The economy remains “solid,” according to the Fed, but officials are cautious about the potential impact of tariffs and other policy changes on prices and economic growth.
The Fed’s projections indicate that policymakers expect growth to slow to 1.4% this year, down from the 1.7% forecasted in March. Inflation is expected to rise to roughly 3%, up from the 2.7% predicted earlier. The unemployment rate is also forecasted to increase to 4.5%. These projections are concerning, given that inflation remains above the Fed’s 2% target, with the current rate standing at 2.4% in May.
President Donald Trump has repeatedly called for the Fed to cut interest rates, criticizing Fed Chair Jerome Powell and labeling him “stupid.” However, Fed officials have emphasized their independence and commitment to data-driven decision-making. They seek more information on the impact of tariffs and policy changes before adjusting rates. Isaac Stell, investment manager at Wealth Club, notes that Trump may have “talked himself into a bit of a bind” as the Fed remains committed to its wait-and-see approach, prioritizing its independence.
The European Central Bank has cut interest rates eight times since last June, while the Bank of England reduced borrowing costs last month but is expected to hold rates steady this week. The Fed’s decision reflects a cautious approach, considering the complex economic landscape and potential implications of policy changes on borrowing costs and economic growth.
The Federal Reserve’s decision to hold interest rates steady reflects its cautious approach to monetary policy amid economic uncertainty. With inflation persisting above the 2% target and economic growth slowing, the Fed is prioritizing patience, waiting for clearer signs of inflation trends before adjusting rates. This stance is reflected in Jerome Powell’s statement, “We do not need to be in a hurry to adjust our policy stance, and we are well-positioned to wait for greater clarity”. The Fed’s latest projections foresee inflation at 2.7% by year’s end and 2.2% in 2026, while GDP growth is expected to slow to 1.7% for 2025.