Central Bank decides to maintain its main interest rate as is; Trump criticizes Powell for not lowering rates
Revised Article:
In a twist of economic twists and turns, President Trump's tariffs have set the stage for another round of inflation surges. Despite a downward trend in inflation since January 2025, Jerome Powell, the Federal Reserve Chairman, anticipates these tariffs to reverse the trend and fuel inflation in the coming months.
According to the Federal Reserve's latest projections, their preferred measure of inflation is expected to hit a whopping 3% by the year-end, a jump from the 2.1% rate in April. The unemployment rate is also predicted to rise to 4.5%, up from the current rate of 4.2%. Growth is anticipated to slow to a meager 1.4% this year, a significant drop from the 2.5% recorded last year.
The Fed kept interest rates unchanged for the fourth consecutive meeting on Wednesday, keeping borrowing costs steady for the time being. However, they are keenly monitoring the impact of tariffs on the economy before making any moves.
"We have to be forward-looking. We expect a meaningful amount of inflation to arrive in coming months, and we have to take that into account," said Powell. He emphasized that the economy is still robust and the Fed has the luxury of time to gauge the real impact of tariffs.
Despite the Fed's proactive stance, cracks are already appearing in the economy, particularly in the housing sector where elevated borrowing costs have led to a slowdown in sales and homebuilding. Trump, in a fit of frustration on Wednesday, renewed his criticism of Powell for not acting more decisively. Yet, Powell maintained his calm and stressed the importance of waiting for clarity on the tariffs' full impact before making any moves.
As for borrowing costs, they continue to be influenced by the Fed's rate decisions. While they remain stable for now, they could see an increase if inflation pressures persist and the Fed responds with tighter monetary policy.
Powell also addressed the potential impact of tariffs on economic activity, stating, "Increases in tariffs this year are likely to push up prices and weigh on economic activity." However, the extent of the impact depends on the size and duration of the tariffs, he added. The tariffs' 'pause' put in place by Trump is set to end on July 9 pending any deals with trading partners.
Trump, known for his critical stance, labeled Powell 'stupid' and 'political' for not cutting rates. However, Powell emphasized that the current strength of the economy allows them to be patient and make smarter decisions.
Trump's focus has shifted from the economy to the federal government's astronomical borrowing costs, which have soared since the pandemic, with interest payments running at an annual rate of over $1 trillion. Pushing the Fed to cut rates simply to save the government money may raise alarms amongst economists as it could threaten the Fed's mandate to focus on stable prices and maximum employment.
While the Fed's core inflation rate remains steady at 2.5%, it's worth noting that other central banks worldwide, including those in Europe, Canada, and the U.K., have reduced their borrowing costs during this period due to US tariffs weakening their economies. However, the U.S. economy remains mostly robust with the unemployment rate remaining low.
To sum it up, the tariffs under Trump's administration are expected to fuel inflation in the coming months, with the Fed projecting a rate of 3% for 2025. The unemployment rate is also predicted to rise slightly due to the tariffs' negative impact on economic activity. While the Fed is maintaining steady rates for now, they are waiting to see the full impact of tariffs before making any policy changes, balancing inflation concerns with the risk of slower growth from tariffs.
- The ongoing tariff policy under President Trump's administration is causing a stir in the finance world, particularly in the realm of investing and business, as it's anticipated to trigger a surge in inflation.
- The issue of tariffs has also found its way into the realm of politics and policy-and-legislation, with the Fed Chair, Jerome Powell, stressing the need to consider its potential impact on inflation and economic activity.
- General news outlets have been covering the ongoing tariff standoff, monitoring its influence on borrowing costs and economic activity, both locally and internationally, as other central banks adjust their policies in response to increased tariffs.
