TheFederal Reservekept interest rates on holdand called out growing dangers in the US economy amidDonald Trump’serratic rollout of an aggressive trade strategy.
Jerome Powell, the US central bank’s chair, cautioned that the president’s tariffs are likely to lift prices, weaken growth and increase unemployment if maintained.
Fed policymakerscautioned that “the risks of higher unemployment and higher inflation have risen” as they opted to maintainthe benchmark interest rate for the third time in a row. “Uncertainty about the economic outlook has increased further,” they said in a statement.
With inflation expectations – how consumers think prices will move – rising,Powell, the Fed chair, said the “driving factor” appeared to be Trump’s tariffs.
At a press conference, he said: “If the large increases in tariffs that have been announced are sustained, there are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
The US president has repeatedly demanded in recent months that the Fed cuts rates – and even raised the prospect offiring Powell, beforewalking back the comments– as Trump’s tariffs planappeared to knockthe US economy.
The Fed has been sitting on its hands for months, however, citing heightened uncertainty. It lastcut rates in December, to a range of between 4.25% and 4.5%.
As Trump pushed ahead last month with sweeping tariffs on imported goods from much of the world, Powell cautioned this would probablyraise prices and slow growth– despite the administration’s pledges to revitalize the US economy and reduce the cost of living for millions of Americans.
US gross domestic product (GDP) shrank for thefirst time in three yearsduring the first quarter, raising fears of recession as Trump’s tariffs – and threats of tariffs – cast a shadow over the world’s largest economy.
Asked whether he was trying to take responsibility for stronger parts of the economy, while blaming his predecessor, Joe Biden, for any sign of weakness, Trump toldNBC’s Meet The Press: “I think the good parts are the Trump economy, and the bad parts are the Biden economy. Because he’s done a terrible job.”
After Fed policymakers finished their latest two-day meeting on Wednesday, the central bank reiterated in its statement that they would “carefully assess incoming data, the evolving outlook, and the balance of risks” ahead of future meetings.
“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed’s rate-setting open market committee said. “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.”
Its callout of greater risks in theUS economyamounted to “a thinly-veiled critique of the new administration’s import tariffs”, said Samuel Tombs, chief US economist at Pantheon Macroeconomics, “and represents an assertion of independence”.