Central bank opts against lowering rates as it continues to weigh up the trade war's likely economic impact
The Federal Reserve has left interest rates unchanged in its May decision, holding the benchmark rate steady despite public demands by President Trump in recent weeks to bring borrowing costs lower.
The central bank announced Wednesday that it was keeping the federal funds rate at its current range of 4.25% to 4.5%, a largely expected move that arrives as Fed officials continue to weigh up the likely economic impact of the president’s tariffs and trade policies.
Consumer confidence has been hammered by a trade war that’s seen huge tariffs slapped on Chinese imports and other levies imposed on goods from key trading partners including Canada, Mexico, and the European Union.
But while the economy appears poised to contract on the back of those measures, its performance has been resilient to date. Inflation slowed unexpectedly in March and unemployment held steady last month.
Still, decisionmakers including Fed chair Jerome Powell – a frequent target of Trump’s ire – have reiterated in recent weeks that they’re in no hurry to bring rates lower amid high uncertainty and lack of clarity on how long the tariffs will remain in place.
Its stance has been strengthened by weak first-quarter economic data, including the first quarterly decline in real GDP since 2022.
US real gross domestic product (GDP) suffered its worst quarter in Q1 2025 since early 2022 as businesses raced to import products with the Trump administration’s “Liberation Day” tariffs looming.https://t.co/L5gPbWRAgJ
— Mortgage Professional America Magazine (@MPAMagazineUS) April 30, 2025
That careful approach has frustrated Trump, who last month torched the Fed in a social media post as “TOO LATE AND WRONG” on its rate policy and suggested that Powell should be removed from his post, although he later said he had no intention to try and fire the chair.
Money markets are now expecting the Fed to lower rates through three quarter-point reductions in the second half of this year – down from April expectations of four 2025 cuts – before trimming by an additional 50 basis points next year.
The central bank looks likely to keep its “wait-and-see” approach in place at least until its next meeting, scheduled for June 17-18, as the tariff war rumbles on.
But traders will be closely watching Powell’s post-announcement press conference, scheduled to take place at about 2:30 p.m. ET, for clues on how the Fed is assessing the current economic landscape – and his views on Trump’s efforts to pressure officials into lowering rates.
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