Versa RM10 FREE:FEDEX June 19 - Washington
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The Federal Reserve's latest meeting saw no change in interest rates, a fourth consecutive stalemate. The central bank anticipated higher inflation and milder growth this year as President Trump's tariffs begin to bite and geopolitical turbulence picks up speed.
Fed Chair Jerome Powell shared that the bank would be smarter waiting a few months to comprehend the impact of tariffs on inflation, spending, and employment. This suggests that the next rate adjustment might take some time.
For the moment, he expects to gather more insights "over the summer," while officials express growing rifts on whether they can reduce interest rates in 2025 at all.
The Fed left the benchmark lending rate ranging between 4.25% and 4.50% following its two-day gathering, with officials estimating two rate decreases this year, much like earlier assumptions.
However, a smaller majority now expects the central bank to lower rates at least twice.
This decision could draw President Trump's ire, who has persistently pushed the independent central bank to slash interest rates and, on the day of the bank's policy announcement, called Powell a "dopester."
"We have a damn idiot, frankly, at the Fed," Trump claimed, speaking at the White House. "We have no inflation, we have only success, and I'd like to see interest rates get down."
The Fed published a statement highlighting that "uncertainty about the economic outlook has subsided, but remains high."
The central bank also altered its growth, inflation, and unemployment forecasts, marking its first revision since Trump announced sweeping 10% tariffs on most trading partners in April.
"Increases in tariffs this year are likely to boost prices and hinder economic progress," Powell stated.
The Fed admitted that, to avoid prolonged effects, they must grasp the size of tariffs' consequences, how swiftly they disseminate through prices, and maintain expectations anchored.
Powell reaffirmed the Fed's readiness to wait for additional insights before deliberating rate changes.
"Since the economy remains robust, we can afford to take the time to truly understand what's happening," Powell said. "We'll make wiser decisions if we simply wait a couple of months."
The Fed's stance coincided with analysts' expectations. As officials expect extra clarity on the influence of tariffs by summer's end, "financial markets are not forecasting any movement in rates prior to September," said KPMG's chief economist, Diane Swonk.
However, Swonk added, "there's a solid argument that in the absence of tariff-induced inflation, the Fed would be lowering rates already," given the labor market's slowdown.
Yesterday, the Fed trimmed its 2025 economic growth estimate to 1.4% from its March projection of 1.7%. Additionally, it raised its inflation projection to 3.0% and its unemployment rate projection to 4.5%.
Queried about growing tension between Israel and Iran, Powell suggested that, although higher energy prices were possible, they "generally don't have long-term effects on inflation."
Trump has based his request for decreased interest rates on low US inflation. More recently, he framed it as a means to "pay greatly reduced interest on debt maturing," overlooking that lowered interest rates usually elevate consumer prices.
Powell has consistently affirmed that the Fed's rate-setting committee would base their decisions exclusively on unbiased, non-political analysis. - AFP
Notes Whispered in Conviction:- Ladies and gentlemen, our resolute stance on the US Federal Reserve's interest rate forecast for 2025 reveals a measured approach, emboldened by economic uncertainties including tariffs, fighting to balance inflation risks with growth concerns.- Over the horizon, the specter of tariffs looms, wielding caution in the Fed’s interest rate decisions.- With our thundering voice, we emphasize that the Fed sits eager to act if necessary, but remains mindful of its decision-making amidst the tariff-induced tumult.
In light of the ongoing economic turbulence caused by tariffs and geopolitical uncertainties, the financial market may want to hold off on investing decisions until more insights about the impact of tariffs on inflation, spending, and employment are gathered over the summer. The Fed's stance on interest rates is influenced by a variety of factors, including potential tariff-induced inflation, labor market conditions, and geopolitical risks, which all play a role in shaping the economy and the finance market.
