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Federal Reserve Pauses Rate Hike, Observing Inflation and Tariff Risks

The Federal Reserve maintains stable interest rates, continuing to observe the trends in inflation and the impact of tariff policies on the economy. Data shows that consumer prices in April rose by 2.1% year-on-year, slightly above the 2% target but showing a downward trend. Despite inflation being close to the target, Federal Reserve officials are skeptical about the sustained decline in inflation, remaining vigilant about the risks of rising commodity prices and businesses passing on tariff costs to consumers, with Fitch Ratings noting that the current drop in inflation may be 'the calm before the storm.'

The Trump administration's increase in tariffs has raised import costs, becoming a key factor in the Federal Reserve's decision to keep interest rates unchanged. Officials believe that the risk of prematurely lowering interest rates is too high until the impact of trade policies on employment and prices becomes clearer.

Data shows weakness on the consumer side: consumer spending in April grew by only 0.2%, and the personal savings rate rose to 4.9%, reflecting that households are increasing savings and cutting back on spending due to the uncertainty of tariff policies. Market traders expect a potential rate cut in September, but the Federal Reserve has made it clear that it will not adjust rates unless inflation falls significantly or the unemployment rate surges, indicating a patience with policy in the short term.