During Wednesday evening, the American Federal Reserve decided to keep interest rates unchanged in the range of 4.25-4.50%, as expected. However, the forecast of a 50 basis point rate cut remains in place, indicating two more cuts are likely to come this year.
The uncertainty surrounding the economic outlook has increased, according to the central bank, even though recent indicators suggest that economic activity has been expanding at a good pace.
Unemployment has stabilized at a low level in recent months, and the conditions in the labor market are described as stable. However, it is noted that inflation is still somewhat high, and the growth forecast for 2025 has been revised down from 2.1% to 1.7% compared to December.
The revisions regarding growth and inflation increase the risk of stagflation, according to Bloomberg.
This is the first interest rate decision from the central bank since Donald Trump’s policies have been fully implemented. It is still too early to determine if inflation has been affected by the recently imposed tariffs.
“We really cannot know that, we will need to see how things actually play out,” says Fed Chair Jerome Powell, also noting that such effects may turn out to be temporary.
In conjunction with the interest rate announcement, Powell emphasized that policy changes in trade, immigration, fiscal policy, and regulation will impact the economy. Although he did not specify how, this is something the central bank will closely monitor.
As the global economic landscape continues to evolve, the Federal Reserve’s decisions play a pivotal role in shaping the future trajectory of the U.S. economy. The delicate balance between supporting growth and managing inflation remains a key focus for policymakers, especially in light of the ongoing uncertainty surrounding trade tensions and geopolitical risks.
The Federal Reserve’s commitment to data-driven decision-making underscores the importance of monitoring economic indicators and trends to guide future policy actions. As inflationary pressures persist and growth projections are revised, the central bank faces a challenging environment that requires nimble responses to navigate effectively.
Overall, the Federal Reserve’s decision to hold interest rates steady while signaling potential future cuts reflects a cautious approach to managing economic risks and uncertainties. The path forward will require a careful balancing act to support sustainable growth while safeguarding against inflationary pressures and external threats.