The U.S. Federal Reserve is expected to leave interest rates unchanged for the fourth consecutive time, reflecting a cautious approach to monetary policy in an environment of ongoing economic uncertainty. The benchmark rate is anticipated to remain within the 4.25–4.5% range. This decision likely stems from the need to monitor the broader impact of President Donald Trump’s trade policies on inflation and economic growth. The Fed appears unwilling to act prematurely, especially as new tariffs could reintroduce price pressures and disrupt market stability.
All Eyes on Updated Economic Projections
During today’s meeting, investors and economists will closely scrutinize the Fed’s new macroeconomic projections. Markets expect slightly downgraded growth forecasts for 2025, along with modestly higher inflation expectations for 2026. Although inflation has eased in recent months and is approaching the 2% target, the Fed has not yet begun a rate-cutting cycle.
Fed Chair Jerome Powell is likely to emphasize that price stability does not rule out future inflation risks, particularly if new tariffs are introduced. His message may suggest ongoing caution and reinforce the central bank’s data-dependent stance.
Subtle Policy Language Expected
The Fed’s statement may include subtle language shifts pointing to continued, though currently stable, economic uncertainty. This cautious tone is partially linked to easing trade tensions with China and the suspension of previously announced tariffs.
Despite prior Fed warnings about the potentially negative effects of trade policy on inflation and employment, current data suggests relative economic balance. The labor market remains strong, and inflationary pressures have weakened. For now, the Fed’s “wait-and-see” strategy appears effective and does not require immediate adjustments.
Market Focus Shifts to Fall Rate Cuts
In the coming months, market participants will focus on economic developments and the progress of trade negotiations, particularly with China. Any rate cuts are unlikely before autumn, with September or December being the earliest potential windows. The pace and direction of future policy moves will depend on how the U.S. economy responds to evolving global conditions.
Powell Faces Questions on Trump, Rates, and Fed Tools
At the post-meeting press conference, Chair Powell is expected to address not only inflation and the future of interest rates but also his recent meeting with President Trump. The president—an advocate of a more expansionary monetary policy—has again called for significant rate cuts, arguing they could stimulate growth and ease public debt management.
Powell may also face questions about the future of the Interest on Reserve Balances (IORB) mechanism, which has been subject to increasing political scrutiny. Proposals to eliminate IORB would significantly limit the Fed’s ability to control short-term interest rates, making it a crucial issue for current and future monetary policy.
Author: Krzysztof Kamiński – Oanda TMS
Source: CEO.com.pl – Fed cautious amid inflation risks and Trump’s trade policy
