The Federal Reserve held its benchmark interest rate steady at 4.25% to 4.5%, maintaining a pause in place since January. The unanimous decision was widely expected, as policymakers weigh growing uncertainties in the economic landscape. The Fed’s statement was deliberately worded to avoid signaling its next move, and Fed Chair Jay Powell reinforced that ambiguity in his press conference responses.
Since the last FOMC meeting on March 19, markets have seen sharp swings—marked by a bond market crisis, stock market crash and rebound, a tariff pause and shifting sentiment. While labor market conditions remain strong, the broader economy faces increasing risks, and President Trump has continued to push for rate cuts.
The Fed acknowledged heightened economic risks, warning that uncertainty has risen. “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. Despite this, it maintained that the unemployment rate has stabilized at low levels and described labor market conditions as “solid,” while inflation remains somewhat elevated.
The decision comes amid market volatility and concerns over tariffs and a potential U.S. recession. Yet, as Marion Jones, principal and executive managing director of U.S. Capital Markets at Avison Young, shared in commentary with Connect, “The Fed’s decision to hold rates steady comes as no surprise. While there is volatility in the market and some uncertainty regarding tariffs and a potential US recession, US economic fundamentals have not yet shown real impact from recent policy decisions.”
Policymakers offered no firm guidance on future moves, maintaining a neutral stance. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the statement read.
Powell has indicated that policymakers will tackle the most pressing challenge first. However, he also signaled that, all else being equal, the Fed will prioritize inflation, aiming to prevent a one-time, tariff-driven price increase from influencing consumer and business expectations and causing broader economic ripple effects.
“We are still in the early days of determining the impact of the tariffs,” John Beuerlein, chief economist at the Pohlad Companies, shared with Connect. “One thing that is clearly happening, however, is that new strategies and alliances are developing that will slow the globalization of trade, and consequently, slow global economic growth.”
For now, the Fed remains cautious, awaiting clarity on the final contours of Trump’s trade policies and their potential economic fallout. If the announced tariffs remain in place, Powell cautioned that they could drive inflation higher, dampen economic growth, and increase unemployment. The latest GDP report showed first-quarter growth contracting, but the Fed pointed to net export swings as a key factor, reaffirming that economic activity continues to expand at a “solid pace.”
Markets continue to price in rate cuts, with some expecting a full percentage point of easing in response to tariff-related headwinds. However, Powell has stressed that monetary policy must consider the broader scope of Trump-era policies—including fiscal measures, immigration, and regulatory shifts—before adjusting policy.
The Fed doesn’t appear poised to cut interest rates in June. While Powell hasn’t ruled it out, he has consistently emphasized that policymakers are not in a “hurry” to act.
“Over the past three months, 10-year yields have ranged between 4.6% and 4.0%. They are currently 4.3%. Expectations for rate cuts are now for three cuts during 2025, with the first cut occurring in July. As long as the employment market holds together, the Fed will likely stay on hold,” noted Beuerlein.
“Investors are grappling with the need to deploy capital while seeking a clearer risk profile, resulting in a measured and disciplined transactional environment,” Jones added. “Real estate sentiment is focused more on resolving issues with major trading partners to prevent a larger recession, rather than on a Q2 rate decrease, though many would welcome the rate cut.”
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