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[1/5] U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee regarding interest rate policy in Washington, D.C., United States, May 7, 2025. Reuters/Kevin Lamarque
[1/5] U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference following a two-day meeting of the Federal Open Market Committee regarding interest rate policy in Washington, D.C., United States, May 7,... Licensing rights to purchase, opens a new tab read more
Summary
Companies
The U.S. central bank leaves the interest rate in the range of 4.25% - 4.50%
Uncertainty remains regarding the evolving Trump policies.
The policy statement indicates strong growth amid risks.
Washington, May 7 (Reuters) - The Federal Reserve (the U.S. central bank) kept interest rates steady on Wednesday but said that the risks of rising inflation and unemployment have increased, adding to the uncertainty of economic forecasts as the U.S. central bank struggles to deal with the impact of the tariff policies pursued by the Trump administration.
The Federal Reserve said in its policy statement that the economy overall "continued to expand at a strong pace," attributing the decline in output in the first quarter to record imports as businesses and households rushed to impose new import taxes.
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The Federal Open Market Committee, which sets the policies of the central bank, stated that the labor market remained "solid" and that inflation is still "somewhat elevated," repeating the language used in its previous statement.
However, the recent statement highlighted emerging risks that could leave the Federal Reserve facing difficult choices in the coming months.
The Federal Open Market Committee concluded a two-day meeting in which officials unanimously agreed to keep the central bank's benchmark interest rate steady in the range of 4.25% - 4.50% saying, "Uncertainty around economic forecasts has increased further."
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The statement said, "The committee is attentive to the risks faced on both sides regarding its dual mandate, seeing that the risks of rising unemployment and rising inflation have increased."
In a press conference following the Federal Open Market Committee meeting, Federal Reserve Chairman Jerome Powell said: "Despite the increasing uncertainty, the economy remains strong." He noted that the Federal Reserve's policy would need to be flexible, stating: "We believe that the current stance of monetary policy puts us in a good position to respond in a timely manner to potential economic developments."
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Powell also noted that trade policy remains a source of uncertainty, emphasizing the need for the Federal Reserve to wait and see. He said: "I don't think we can predict... which direction things will go," adding: "I believe there is a great deal of uncertainty about, for example, where tariff policies will settle. "
U.S. stock prices briefly continued gains following the Federal Reserve's statement before retreating. Treasury yields fell.
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The direction of policy will depend on which of the job and inflation risks will develop, or in the more challenging scenario, whether inflation and unemployment will rise together, forcing the Federal Reserve to choose the more significant risks to try to counter them with monetary policy.
Weakness in the labor market would typically bolster the case for lowering interest rates; while rising inflation would call for keeping monetary policy tight.
