The Federal Reserve decided to keep interest rates steady on Wednesday, while still forecasting two potential cuts later in the year. They noted that the uncertainty surrounding the economic effects of President Trump’s tariffs has decreased.
The latest economic projections paint a picture of modest growth in the U.S. economy, with a projected growth rate of 1.4% for this year. The unemployment rate is expected to rise to 4.5% by year’s end, and inflation is predicted to soar beyond current levels, likely exceeding 3%.
Policymakers anticipate cutting the reduction rate by half a point this year. These forecasts were influenced by earlier ones made in March and December. However, the pace of cuts for 2026 and 2027 has been slightly adjusted, aiming to bring inflation back to the central bank’s 2% target.
Following the report, the Dow Jones Industrial Average climbed 107 points (0.3%), while the S&P 500 and Nasdaq experienced increases of 0.2% and 0.3%, respectively.
Before the announcement of the policy, Trump was vocal about his desire for the Fed to make rate cuts, referring to Jerome Powell as “silly” and suggesting that the borrowing rate should be at least 2 percentage points lower.
“Honestly, it’s probably not going to happen today,” Trump remarked outside the White House just hours before the policy release.
He noted, “We’ve had 10 cuts in Europe, but nothing here. [Powell] isn’t very political, but he’s causing financial strain for the country.” Trump speculated about the possibility of appointing a new Fed chair if Powell’s term expires next year, humorously questioning whether he could appoint himself, claiming he would do a better job.
As Trump enforces substantial tariffs on various countries, including a 55% tariff on China and 10% on others, the Fed opted to maintain interest rates in the 4.25% to 4.5% range.
Consumer pricing data for May indicated that inflation rates are unlikely to exceed expectations, but economists cautioned that the impacts of tariffs might start to show up in economic data this summer.
Mark Zandy, chief economist for Moody’s, shared on social media that although large companies might take time to increase their prices, they are eager to remain adaptable since the effects of tariffs are viewed as potentially temporary in light of profit gains from pandemic-related price hikes.
In other news, the ongoing conflict between Israel and Iran entered its sixth day, with growing concerns that the escalation could have repercussions on global oil prices and supply.
According to CME FedWatch, the market is anticipating that the next rate cut could happen in September.
Meanwhile, Bank of America stated it does not foresee any rate cuts for the remainder of the year but remains open to possibilities. Goldman Sachs, on the other hand, is only predicting a single rate cut during the year.
