- The Federal Reserve retained interest rates at 4.25%–4.5% amid rising economic uncertainty.
- Labor market conditions remain strong while inflation stays above the Fed’s 2% long-term target.
- The Fed warned of higher risks to both employment and inflation amid global trade tensions.
The U.S. Federal Reserve has decided to keep interest rates steady, maintaining the federal funds rate between 4.25% and 4.5% amid ongoing concerns over inflation and economic uncertainty. The decision was announced at the Federal Open Market Committee (FOMC) event, held on May 6 and 7.
The FOMC noted that while the economy continues to expand, inflation remains above target. The labor market remains strong, with the unemployment rate holding steady at 4.2% over recent months. Payroll job gains have averaged 155K per month over the past three months.
Federal Reserve Chair Jerome Powell mentioned that inflation has declined since its mid-2022 peak but remains above the Fed’s 2% target. Over the past year, the total PCE price increased by 2.3%, while core PCE, excluding food and energy, rose by 2.6%.
Speaking at a press conference, Powell emphasized that the labor market is near maximum employment. He added that wage growth is moderating and is no longer a major source of inflationary pressure. However, Powell acknowledged that economic uncertainty has increased, particularly due to recent trade policy changes.
Powell explained that fluctuations in net exports, driven by companies importing goods ahead of possible tariffs, complicated GDP measurement in the first quarter. Still, private domestic final purchases grew at a solid 3% annual rate during that period.
The Fed highlighted concerns about risks on both sides of its dual mandate, rising threats of higher inflation and unemployment. Powell stated that the current monetary policy stance allows flexibility in responding to future economic developments.
Related: Tariff Surge Threatens Inflation, Economic Growth: Powell
Further, the agency also reaffirmed its commitment to reducing its balance sheet by continuing to wind down holdings of Treasury and agency securities. Powell warned that sustained high tariffs could raise inflation and slow growth and emphasized that the Fed would monitor how these effects evolve and act accordingly.
The Fed’s decision follows months of debate over rate adjustments amid fluctuating economic indicators. Recent surveys show lower consumer and business sentiment, mostly due to trade concerns.
The committee will continue evaluating incoming data to determine future policy moves. It reaffirmed its goals of achieving maximum employment and 2% inflation over the long run. Powell added that the Committee remains open to feedback as it reviews its policy framework, with conclusions expected later this summer.
