May 7 (UPI) — The Federal Reserve Wednesday was expected to keep interest rates where they are rather than cutting them amid the economic uncertainty caused by Trump administration tariffs.
Concerns about tariff-related inflation and slower economic growth are behind the Fed’s anticipated decision to hold rates steady, despite efforts by President Donald Trump to pressure the Fed for interest rate cuts.
As tariffs exert higher inflationary pressure, the Fed is unlikely to cut interest rates again soon unless the job market takes a hit.
The Fed wants to cut inflation but also must balance that goal against the risks of tipping the economy into recession.
“The Fed’s got to wait for two things: It’s to see that the policy actually goes into place … But then, when it’s demonstrated, it’s got to see how inflation expectations react. So that’s why the Fed’s got to delay, then go slow,” BNY Investments chief economist and former Fed official Vincent Reinhart said in a statement.
BNY still expects two interest rate cuts in 2025.
“The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Fed Chair Jerome Powell said in April.
Trump called for Powell’s firing after that statement.
On top of the tariffs, the economy contracted in the first quarter of 2025 as gross domestic product fell by 0.3% at an annual rate.
Consumer sentiment at the end of April plunged to the lowest lowest level since May 2020 during the COVID-19 pandemic.
The Fed has been managing interest rates to curb inflation without sending the economy into recession with the goal of returning inflation to 2%.
The current economic climate is posing a challenge to Fed policymakers as they try to read the data to determine future interest rate decisions.
Goldman Sachs economist David Mericle said in a note it could take a couple of months for enough data to come in to “make the case for a cut.”
