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American Focus > Blog > Economy > Federal Reserve holds rates steady as it warns of rising economic risks
Economy

Federal Reserve holds rates steady as it warns of rising economic risks

Last updated: May 7, 2025 11:15 am
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Federal Reserve holds rates steady as it warns of rising economic risks
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The Federal Reserve has decided to keep US interest rates steady for the third consecutive meeting, citing concerns over President Donald Trump’s tariffs potentially causing inflation and weakening the job market. The Federal Open Market Committee unanimously agreed to maintain the federal funds target range of 4.25 to 4.5 percent, emphasizing the increased uncertainty surrounding the economic outlook.

Fed officials have refrained from lowering borrowing costs since December, indicating a cautious approach as they monitor the impact of Trump’s trade policies on the economy. Despite calls from the President to cut interest rates, the Fed remains patient in its assessment of the situation.

Recent reports showing solid demand in the US economy have reinforced the Fed’s stance on maintaining current interest rates. The strong non-farm payrolls figures for April indicate a robust labor market, leading many economists to postpone expectations of a rate cut until at least September.

Following the Fed’s decision, there was no immediate shift in rate expectations, with US Treasury yields dropping to their lowest levels of the day. This suggests that the central bank’s stance was less hawkish than anticipated by traders, leading to a decline in stock prices as well.

Trump’s announcement of tariffs in April raised concerns about potential trade barriers, but the Fed remains optimistic about economic expansion despite the initial contraction in GDP in the first quarter. The FOMC attributes this decline to distortions caused by the tariffs, with recent indicators pointing towards continued solid economic growth.

Federal Reserve Chair Jay Powell is expected to address the press to provide insights on future borrowing costs. Powell is likely to maintain a cautious approach, emphasizing the need to monitor the unfolding situation and its impact on economic growth and inflation. By reiterating this message, Powell aims to ensure clarity and stability in the face of ongoing uncertainty.

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Overall, the Fed’s decision to keep interest rates unchanged reflects its commitment to evaluating the full impact of external factors, such as tariffs, on the economy before making any significant changes. The central bank’s cautious approach and focus on data-driven decisions aim to support sustainable economic growth and stability in the long term.

TAGGED:EconomicFederalHoldsratesReserveRisingRiskssteadyWarns
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