Federal Reserve Chairman Jerome Powell and his colleagues decided to keep interest rates unchanged for the time being. Powell noted that more clarity is expected in the coming months on how President’s tariffs will impact the U.S. economy. The size, effect, and duration of these tariffs remain uncertain, making the Fed’s decision to pause a cautious and prudent move.
Inflation and Growth Forecasts Revised
Although the Fed held rates steady, officials adjusted their economic forecasts to reflect a slightly more challenging outlook. They now predict higher inflation and slower economic growth this year compared to earlier projections.
Powell explained the shift by saying, “We understand that tariffs are going to be much higher than the consensus forecasters expected.” This acknowledgment signals growing concern about the tariffs’ potential economic impact.
Economy Shows Resilience, Says Powell
Despite these concerns, Powell defended the overall strength of the U.S. economy. He highlighted that the economy has so far defied forecasts of a slowdown. Business confidence is reportedly improving, and people feel more optimistic than three months ago.
“The U.S. economy has defied all the forecasts that it was going to weaken,” Powell said. He added that there is a shared sense that the country is “trying to get through this,” making the outlook “more positive and more constructive.”
Why Wait on Rate Changes?
With tariffs still the major unknown, the Fed believes it is wise to wait for clearer data before changing rates. Unemployment remains low by historic standards, and inflation trends are not yet definitive enough to justify a move.
Price pressures continue to be a concern, especially as additional tax policies filter through the economy. However, the Fed is not currently forecasting further rate hikes in the next few years, nor does it expect rates to remain flat despite the higher inflation forecast.
Powell on the Challenges of Forecasting
Powell acknowledged the difficulty in predicting interest rate paths, noting the uncertainty among economists and market watchers.
“People write down their interest rate path, but they’re not too sure about the path of interest rates over the next two years,” he said. “No one has that expectation for their interest rate path. They think, ‘What do I write down?’ I mean, what would you write down? It’s not easy to do that with confidence.”
