- The Fed kept interest rates steady at 4.25%–4.5% and still expects two cuts this year despite rising tariffs and economic uncertainty.
- Inflation forecasts have risen, while growth projections were lowered; core inflation is now expected to hit 3.1% in 2025.
- Trump’s tariffs are complicating the Fed’s decisions, while political pressure on Powell ramps up amid stalled rate moves.
The Federal Reserve hit the pause button again on rate changes Wednesday, keeping its benchmark rate locked in the 4.25% to 4.5% range. This marks the fourth straight meeting without a change, as officials wrestle with a tricky mix: President Trump’s rising tariffs are pushing inflation higher while also slowing down economic growth.
In its latest outlook, the Fed raised its 2025 inflation expectations and downgraded growth forecasts. Since March, Trump’s added more tariffs, and even though he’s since paused some and struck a preliminary deal with China, the outlook is still foggy. The Fed said uncertainty has “diminished but remains elevated.”
Rate Cuts Still on the Table—But Fewer
Despite all this, the Fed still expects to cut rates twice this year. The median forecast points to lowering the federal funds rate to between 3.75% and 4%—though opinions inside the Fed are split. Ten officials are on board with two cuts, while nine see one or none.
Officials are walking a fine line. Tariffs could drive inflation up, but they also threaten to drag spending and growth down. The Fed is basically waiting to see which side hits harder before making any big moves.
Inflation and Growth Forecasts Shift
Inflation is now projected to rise to 3% by the end of 2025, up from 2.7% in March. Core inflation, which strips out food and energy, is expected to climb to 3.1%. That’s still down from the wild 7% we saw in 2022, but above the Fed’s 2% goal.
Meanwhile, the Fed trimmed its growth forecast. They now expect the economy to expand by 1.4% this year—lower than the 1.7% it had hoped for. In Q1, GDP actually slipped 0.2%, with folks rushing to buy goods before new tariffs kicked in. For Q2, Barclays sees 1.3% growth.
Jobs Holding Up, But Rate Path Unclear
Unemployment is expected to rise slightly to 4.5% by year’s end. Hiring is slowing but still steady. The real question now: how many cuts are coming? Fed Chair Powell says the bank will cut only if tariffs cause more damage to jobs than they do to inflation. Some analysts now believe the Fed may only deliver one cut this year.
Meanwhile, consumers are still enjoying relatively low rates on things like credit cards and auto loans thanks to cuts made in late 2024.
Tariff Worries and Political Pressure
Trump’s tariffs are averaging around 14% now—up sharply from earlier this year. And while he’s eased off some duties to make room for negotiations, the economic uncertainty they’ve caused is tying the Fed’s hands. Without those trade worries, the Fed might’ve cut by now.
Some experts say the Fed is caught in a bind. “It’s unlikely we’ll see the kind of cuts some folks are hoping for,” said MIT’s Daniel Hornung.
Trump, for his part, isn’t happy. He’s slammed Powell again this week, calling him a “stupid person” and musing about replacing him or even taking the job himself. Despite that, Powell’s term runs until 2026, and legally, removing him isn’t easy.
