The US Federal Reserve’s Federal Open Market Committee (FOMC) held rates steady today, as expected by the markets. The target range for the federal funds rate will remain at 4-1/4% to 4-1/2 %. The vote was unanimous in keeping rates the same.
The Fed noted that the unemployment rate has stabilized at a low level, and labor markets are solid. At the same time, inflation concerns remain elevated. The FOMC said that there is a risk of both higher unemployment and higher inflation, otherwise known as stagflation. Increasing inflation could compel the Fed to raise its benchmark rates.
As always, the Committee said it stands ready to adjust if the outlook changes.
The Fed statement said that the uncertainty of the economic outlook has risen, alluding to the aggressive tariff policy pursued by the Trump Administration.
There is a risk that if tariffs remain in place, the cost of goods will move demonstrably higher, thus causing inflation. At the same time, if the cost of inputs remains elevated, unemployment may increase as well. Of course, all of this is predicated on how the Trump Administration manages trade policy. If trade agreements are quickly signed between major trade partners, the situation could improve.
Fed Chair Jerome Powell will hold a press event at 230PM ET.
