The Federal Reserve held interest rates steady for the third time this year, as the US economy is roiled with uncertainty.
While job growth in April beat expectations and inflation cooled in March, the data doesn’t reflect the full impact of President Donald Trump’s tariffs on goods from China and most other countries. Fed Chair Jerome Powell in recent months has said the central bank is waiting to see how Trump’s trade policies affect the economy.
The Federal Open Market Committee announced on May 7 that interest rates will remain at 4.25%—4.50%, in line with market predictions. CME FedWatch, which estimates interest-rate changes based on market moves, projected a 98% chance before the announcement the Fed wouldn’t change rates.
Trump has called on the Fed to cut interest rates, posting on Truth Social that oil and grocery prices are down and the US is “getting rich” on tariffs. But economists don’t think the price drops will last, especially after Trump’s newest round of tariffs in April.
“That was nice, but don’t get used to it,” Greg McBride, Bankrate’s chief financial analyst, said in April, in response to the consumer price index in March falling to 2.4%, the lowest level in four years. The index is a gauge for inflation that measures the average change over time in the prices Americans pay for goods.
McBride added that “consumers, businesses, and even the Federal Reserve, are bracing for higher prices in the months ahead.”
Trump slapped 145% tariffs on imports from China, and most other countries face a 10% baseline tariff, except Canada and Mexico. However, those two countries did get hit with a 25% tariff on the cars, steel, and aluminum they send to the US. Both China and Canada have retaliated with their own levies on certain US goods.
Trade war fears have contributed to rising stagflation risks, in which US economic growth stalls and prices keep rising. That scenario effectively paralyzes the Fed, which can’t respond to both problems at once.
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