Fed risks Trump's wrath by holding rates steady
The Federal Reserve voted to hold interest rates steady again, in line with analysts expectations. Although the central bank is holding the benchmark rate steady - at between 4.25 and 4.5 percent - officials said they expect to cut rates twice before the end of the year.
Powell said economic 'uncertainty is unusually elevated' and although tariffs have been scaled back from their peak in April they will still raise prices. 'Increases in tariffs this year are likely to push up prices and weigh on economic activity,' Powell said on Wednesday.
Stocks rose slightly following the decision, with the S&P 500 up 0.4 percent and the Nasdaq rising 0.5 percent. The Federal Reserve's decision will likely provoke the president's ire as he has lashed out at Powell for not cutting rates sooner.
Trump previously threatened to fire Powell from his post and replace him with a more compliant chair. While the president has since reneged on that threat, he has continued to heap pressure on Powell to cut rates.
The decision to hold interest rates steady is part of the Fed's 'wait and see' strategy as the full impact of President Trump's economic policies including tariffs are yet to become clear.
'The wait-and-see approach has served them well up until this point,' Brett Ryan senior US economist at Deutsche Bank said of Wednesday's decision. 'Why deviate from it now when there's no pressing reason to do so and with still upside risk to the inflation outlook?'
While the Fed rate does not directly affect rates for loans, credit cards and mortgages, it strongly influences them. The Fed's dual mandate is to keep prices from rising too quickly while maintaining a healthy labor market.
Recent inflation and job reports have been muted but better than expected leaving the central bank in a tricky position. Hiring slowed less than expected last month , the latest jobs report from the Bureau of Labor Statistics revealed. The unemployment rate also remained steady at 4.2 percent.
But despite the better than expected numbers, it was still a retreat in job growth from April, signaling remaining uncertainty about where the US economy is headed. Prices also rose less than expected last month , according to the most recent inflation data.
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