Fed Holds Rates Amid Rising Uncertainty; Powell Emphasizes Data-Driven Approach

In its May 2025 meeting, the U.S. Federal Reserve maintained the federal funds rate at 5.25%–5.5%, marking the third consecutive decision to hold rates steady. Chair Jerome Powell highlighted "extreme uncertainty" in the economic outlook, attributing it largely to the Trump administration's unpredictable trade policies and escalating tariffs.

Powell acknowledged modest progress toward the Fed's 2% inflation target, stating, "More good data would strengthen our confidence that inflation is moving sustainably toward 2%." However, he cautioned against premature rate cuts, emphasizing the need to balance risks of persistent inflation against potential economic slowdown.

The Fed's stance has put it at odds with President Trump, who has been advocating for rate reductions to stimulate economic growth. Despite political pressure, Powell reaffirmed the Fed's commitment to data-driven decisions, indicating that any policy adjustments would depend on incoming economic indicators.

Market reactions were mixed following the announcement. The S&P 500 and Dow Jones Industrial Average posted modest gains, while the Nasdaq Composite experienced a slight decline. Investors are now closely monitoring upcoming inflation and employment data, with many anticipating a possible rate cut in the July meeting if favorable trends continue.

Powell's remarks underscore the Fed's cautious approach amid a complex economic landscape, balancing the dual mandates of price stability and maximum employment while navigating geopolitical uncertainties.

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