- The Fed held interest rates steady but still expects two rate cuts by the end of 2025.
- Powell warned tariffs could drive inflation higher, delaying any potential rate reductions.
- New Fed projections show slower growth, rising unemployment, and inflation staying above target.
The Federal Reserve kept interest rates unchanged on Wednesday, holding its benchmark range between 4.25% and 4.50%. During a press conference, Fed Chair Jerome Powell acknowledged that 2025 may entail two rate cuts. But he urged caution, stressing the economic outlook remains highly uncertain.
The rate decision was approved unanimously by the committee. Officials now expect inflation to rise due to import tariffs proposed by President Donald Trump. Powell warned that these levies could spark a “meaningful” increase in consumer prices in the coming months.
Tariffs Could Delay Rate Cuts
Powell explained that recent inflation data has been favorable. Without tariff-related concerns, rate cuts might already be appropriate. However, the cost burden from upcoming import duties will likely shift to consumers. He noted that manufacturers, exporters, and retailers are still debating who will absorb these expenses.
“Ultimately, some of it will fall on the end consumer,” Powell said. He added that the Fed plans to wait for clarity on how much inflation will rise due to tariffs.
The GENIUS Act, recently passed in the Senate, was not mentioned during the Fed’s press conference. Powell focused instead on domestic inflation and labor market conditions.
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Growth Slows as Inflation Persists
New forecasts show the Fed expects economic growth to fall to 1.4% in 2025, down from 1.7% projected in March. At the same time, inflation is expected to reach 3% next year, up from 2.7%. The unemployment rate may hit 4.5% by the end of 2025, compared to 4.2% in May.
The Fed stated that the job market remains strong, but Powell acknowledged the rising risks. Officials are divided on the path ahead. Seven out of 19 policymakers believe no rate cuts will be needed next year. Inflation is now projected to stay above the 2% target through 2026. The Fed expects it to drop to 2.1% by 2027.
Powell addressed rising tensions in the Middle East but noted that the conflict has not yet impacted inflation. He acknowledged that energy prices could increase. However, the Fed sees such spikes as short-lived and not requiring immediate policy changes.
“For the time being, we are well-positioned to wait to learn more,” Powell said. He emphasized the Fed’s readiness to adjust based on future economic data.
