Federal Reserve Keeps Rates Unchanged Expects 3% Inflation

The Federal Reserve, on Wednesday, decided to keep interest rates unchanged for the fourth consecutive time. The Federal Open Market Committee members still anticipate two rate cuts this year, consistent with their projections from March.

During the press conference, Fed Chair Jerome Powell cautioned the public not to interpret the "dot plot" too closely, as it is updated quarterly and is challenging to predict with certainty.

Central bankers now project the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, to reach 3% by the end of the year, up from 2.7% in March.

Committee members expect the unemployment rate to end the year at 4.5%, slightly higher than the 4.4% projected in March. Median expectations for gross domestic product growth have decreased to 1.4% from 1.7% in March.

When asked about the timing of the two interest rate cuts, Powell stated that it is difficult to predict but assured that they will occur eventually. He emphasized that as long as the economy remains solid, with a strong labor market and reasonable growth, the current policy stance is appropriate.

Powell also addressed President Donald Trump's frustration with his decision to leave rates unchanged, stating that he is focused on his current role and not considering future plans beyond his term as Chair, which ends in May 2026.

Powell acknowledged the impact of tariffs on inflation, noting that these costs will be passed on to consumers and will continue to influence inflation in the coming months.

The Federal Reserve's Summary of Economic Projections indicates that policymakers expect two rate cuts this year, despite the upward revision in near-term inflation forecasts. This suggests that the central bank remains cautious about the economic outlook and is prepared to adjust its policies as needed.

Analysts suggest that the Federal Reserve's decision to keep rates unchanged and its revised inflation projections indicate a more cautious stance. Some analysts believe that the central bank is willing to sacrifice employment and GDP growth to keep tariff-induced inflation low. This perspective is supported by the Fed's focus on short-term data and its concern over rising inflation, despite the recent softening in some economic indicators.

The Federal Reserve's decision to maintain interest rates and its revised projections for inflation and economic growth reflect a balanced approach to monetary policy. The central bank is carefully monitoring economic developments and is prepared to adjust its policies as needed to address inflationary pressures and support economic growth.