The Federal Reserve decided to keep interest rates steady on Wednesday, maintaining the benchmark rate between 4.25% and 4.5%. This marks the third straight meeting with no change in rates. In its statement, the Fed noted increasing risks to both inflation and unemployment.
“The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” the statement read. During his post-meeting press conference, Fed Chair Jerome Powell cautioned that the current tariffs, if they remain in place, could lead to slower economic growth, higher long-term inflation, and increased unemployment. President Donald Trump, who has been critical of the Fed’s policies, reiterated his position against lowering tariffs on China before trade talks scheduled for this weekend in Switzerland.
The Trump administration insists that China address the fentanyl issue for the negotiations to make meaningful progress. Reactions to the Fed’s decision were mixed. David Kelly, chief global strategist at JPMorgan Asset Management, saw the announcement as a critique of the administration’s policies, suggesting they are contributing to higher inflation and unemployment risks.
Fed’s cautious economic outlook
Barclays pointed to the growing risk of a recession if trade uncertainties persist. The longer uncertainty persists without any concrete progress on deals, the higher the recession risk,” said Emmanuel Cau, head of European equity strategy at Barclays.
Despite the Fed’s decision and ongoing trade tensions, major U.S. stock indexes closed higher in a volatile trading session. The S&P 500 rose 0.43%, the Nasdaq Composite gained 0.27%, and the Dow Jones Industrial Average climbed 0.70%. Utility stocks were a bright spot, with BTIG chief market technician Jonathan Krinsky suggesting they may be on the verge of a breakout.
However, tech stocks saw some declines, with Alphabet and Apple shares falling after Apple’s services chief hinted that AI search engines could replace standard search functions in the future. Regional banks experienced their third consecutive day of declines, with Park National, Oceanfirst Financial, and Preferred Bank each falling over 1%. The U.S. dollar also strengthened significantly against the Taiwan dollar and the Korean won.
As the Fed maintains a cautious approach in navigating the complex economic landscape, the nation will be closely watching how trade policies and market conditions unfold in the coming months.
Image Credits: Photo by Aidan Hancock on Unsplash
