US Fed holds rates, flags rising inflation and unemployment risks
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The news: The US Federal Reserve held rates steady at 4.25–4.50% on Wednesday as economic risks escalated, warning that uncertainty about the economic outlook had “increased further” and that the chances of both higher inflation and rising unemployment had grown.
The context: The Fed's decision was expected and follows a first-quarter GDP contraction attributed to the effects of Trump’s tariffs on trade.
Since April’s “Liberation Day” tariff hikes, core inflation is expected to rise. Markets are pricing in potential rate cuts starting in July, though analyst quoted by Bloomberg expect the Fed to maintain its current stance until the effects of the trade policies are clearer.
US President Trump, who has repeatedly attacked Fed Chair Jerome Powell as “a total stiff”, said he would not remove him before his term ends in 2026, but insisted “he should lower” rates.
What they said: The Fed cited solid labour conditions, with April data showing a surprise 177,000 jobs added and the unemployment rate steady at 4.2%.
“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated,” the central bank said in a statement.
“Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
The sources: US Federal Reserve statement, Bloomberg, Reuters
