U.S. Fed holds key rate steady, saying inflation risk rising

Kyodo News

08-05-2025

By Takuya Karube, KYODO NEWS - 2 hours ago - 08:11 | All, World
The U.S. Federal Reserve on Wednesday kept its key interest rate steady for a third straight policy meeting, saying the risk of inflation has increased, while officials around the world brace for more uncertainty in the economic outlook stemming from President Donald Trump's tariff policy.
The Fed's unanimous decision to maintain its target range for the federal funds rate, which commercial banks charge each other for overnight loans, at 4.25-4.50 percent came as Trump has pressured the central bank a handful of times to lower borrowing costs for consumers while claiming there is virtually no inflation.
"Uncertainty about the economic outlook has increased further," the Federal Open Market Committee said in a statement after its two-day policy meeting, the first since Trump unveiled on April 2 his broadest package of tariffs, targeting almost every country in the world.
While acknowledging that economic activity has continued to expand at a "solid pace" and labor market conditions are still "solid," the Fed's policy-setting committee strengthened its warning about uncertainty, adding "further" to the phrase seen after the previous meeting in March.
It also said that "the risks of higher unemployment and higher inflation have risen."
Fed Chair Jerome Powell said at a press conference that the central bank does not have to be in a hurry to make a move, suggesting the need to adopt a wait-and-see stance until the impacts of Trump's tariffs show up in economic data.
"Ultimately we think our policy rate is in a good place to stay as we await further clarity on tariffs and ultimately implications for the country," he said.
Many economists have projected significant slowdowns in global and U.S. economic growth due to the impact of the tariffs, which are likely to fuel inflation and disrupt supply chains for major industries.
Official data showed last week that the U.S. economy contracted at an annual rate of 0.3 percent in the first three months of this year, compared with a 2.4 percent expansion in the fourth quarter of 2024.
The U.S. economy saw its first shrinkage in three years due to a surge in imports as American companies stocked up before the Trump administration's duties came into force.
In the latest updated quarterly summary of economic projections, released following the previous policy meeting, most policymakers of the U.S. central bank predicted the key rate will be 3.9 percent at the end of 2025, suggesting two possible rate cuts through the year, no change from the median forecast in December.
At the time, the Fed also lowered its U.S. economic growth forecast. It projected the U.S. gross domestic product to grow 1.7 percent from a year earlier, down from the previous forecast of 2.1 percent.
Powell has been cautious about cutting the interest rate, especially since Trump unveiled his array of tariffs, which include a 10 percent duty on all imported goods as well as additional, country-specific levies.
Despite saying recently that he does not plan to fire Powell, Trump has repeatedly criticized him, sparking concern that the Fed's independence is under threat.
When asked Wednesday whether Trump's repeated calls on the Fed to make rate cuts have affected its monetary policy, Powell said, "We're always going to do the same thing, which is we're going to use our tools to foster maximum employment and price stability for the benefit of the American people."
"We're always going to consider only the economic data, the outlook, the balance of risks and that's it," he said. "That's all we're going to consider. So, it really doesn't affect either our job or the way we do it."
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