Central Bank Maintains Interest Rates Unchanged, Bucking Trump's Pressure
Revamped Review
Fed keeps rate steady on Wednesday, giving the economy a breather amid Trump's tariff policy uncertainties. The Fed's benchmark interest rate, namely the federal funds rate, has been steady between 4.25% and 4.5% since December 2024, and this latest move signals a cautious approach[1][3].
The initially set rate was a sharp increase from pandemic-related inflation spikes. Fast-forward to mid-2025, the Fed is concerned about an inflation rebound. They predict that the personal consumption expenditures index will reach 3% by the end of 2025, higher than their March prediction[3]. On the flip side, they foresee two quarter-point interest-rate cuts by the end of 2025, with more cuts expected in 2026 and 2027[3].
Speaking at a press conference in Washington, D.C., Powell, the Fed Chairman, warned that tariffs could lead to stagflation—inflation combined with an economic slowdown[3]. If stagflation occurs, the Fed faces a tricky position. Raising rates to curb inflation could choke the economy, while lowering rates to boost economic activity might worsen inflation[3].
Trump, who tends to be vocal about the Fed, has criticized its stance of restraint[3]. Urging the Fed to make rate cuts, Trump expressed concerns over job growth and inflation[3]. However, Powell emphasized the need for the Fed to remain patient and observe how the economy develops[3].
Tariffs' instability is not limited to the domestic front. They are forecasted to push up US gas prices due to the Israel-Iran tensions[2]. Experts predict a 30% hike in gas prices by September 2025[2]. The Organisation for Economic Co-operation and Development (OECD) also expects US inflation to reach 4% by the end of 2025[2]. All this puts the Fed in a dilemma: when to intervene and how.
Notably, Powell and Trump differ in their views on tariffs. While Powell has emphasized their negative impact on the economy, Trump has chosen to dial back some tariffs while keeping others, creating confusion in the business sector[3]. This uncertain tariff environment may continue, as a pair of federal court rulings in late May put certain tariffs in legal limbo[3].
In all, the Fed's current approach indicates a wait-and-see stance, carefully contemplating the economic fallout of the ongoing tariff conflicts while seeking to balance inflation control and economic growth.
Sources:
[1] Federal Reserve Press Release. (2025, June 18). Retrieved from https://www.federalreserve.gov/newsevents/pressreleases/monetary20250617a.htm
[2] Feuer, T., & Thomas, R. (2025, June 15). Israel-Iran conflict expected to hike US gas prices, experts say. Here's how much. Reuters. Retrieved from https://www.reuters.com/business/energy/israel-iran-conflict-reate-us-gas-prices-experts-say-heres-how-much-2025-06-15/
[3] Swanson, G. (2025, June 18). How the Federal Reserve's stance on interest rates is shaping up amid tariff tensions and inflation. USA Today. Retrieved from https://www.usatoday.com/story/money/2025/06/18/federal-reserve-interest-rates-tariff-tensions-economy/7955168002/
- The Fed's wait-and-see stance is influenced by the ongoing tariff conflicts, as they aim to balance inflation control and economic growth.
- The impact of tariffs extends beyond the domestic economy, with an expected 30% hike in US gas prices due to Israel-Iran tensions.
- The Fed's complete approach includes monitoring general-news events like political decisions and their potential effects on both the health and food sectors of the economy.
- Financial analysts are keeping a close eye on the Fed's decision-making process, as their choices regarding interest rates could have significant implications for the business world.
