The U.S. Federal Reserve kept interest rates unchanged on Wednesday, maintaining the benchmark rate in the 4.25% to 4.5% range. This decision comes despite pressure from U.S. President Donald Trump to lower borrowing costs immediately, amid growing concerns over the economic impact of tariffs on inflation and growth.
Fed Chair Jerome Powell highlighted that the costs of Trump’s tariffs are expected to be passed through along the supply chain, from manufacturers and importers to consumers, resulting in a “meaningful increase” in prices. Policymakers project that the tariffs could temporarily push inflation to around 3% by the end of the year, before gradually easing back toward the Fed’s 2% target in 2026 and 2027. The Fed projects GDP growth will decrease to 1.4% this year, down from 2.5% last year, while the unemployment rate will increase from 4.2% to 4.5%.
The Fed signaled two rate cuts later in 2025 but emphasized that timing will depend heavily on incoming economic data, especially around inflation and tariff impacts. Market expectations currently point to a possible rate cut in September.
