Fed Holds Rates Steady, Powell Warns of Tariff Impact on Inflation

Federal Reserve Chair Jerome Powell signaled that higher prices are coming due to tariffs, but it's unclear how much the cost will fall on consumers. Policymakers voted to hold interest rates steady for a fourth straight meeting as they await clarity on the tariff impact. Powell expects to learn more about tariffs this summer. The median forecast in the so-called dot plot continued to show two rate cuts this year, but seven officials now see no reductions in 2025.

The Federal Reserve (Fed) has maintained its benchmark interest rate at 4.25% to 4.5% for the fourth consecutive meeting, despite growing concerns over the economic impact of tariffs. This decision was made following a Federal Open Market Committee (FOMC) meeting on Wednesday, June 17, 2025.

The Fed's decision to keep rates unchanged comes as officials await more clarity on the extent to which tariffs will affect prices and economic growth. Federal Reserve Chair Jerome Powell has indicated that higher prices are expected due to tariffs, but the magnitude of this impact remains uncertain. Powell expects to gain more insight into the tariff's effects this summer.

The median forecast in the so-called dot plot, a tool used to gauge the expected path of interest rates, continued to show two rate cuts this year. However, seven of the 19 policymakers now see no reductions in 2025, reflecting a deeper split among officials. Despite this disagreement, every member signed off on the policy statement.

The Fed's latest projections indicate that the economy is expected to slow further this year, with GDP growth estimated at 1.4%, down from the 1.7% forecast in March. Inflation is expected to rise to 3%, with the core personal consumption expenditures (PCE) inflation rate projected at 3.1%. Unemployment is also expected to increase, reaching 4.5%.

President Donald Trump has been vocal in his criticism of Powell and has repeatedly called for the Fed to cut interest rates. However, the Fed has maintained its independence and continues to make policy decisions based on economic data, rather than political pressure.

The Fed's decision to hold rates steady reflects its cautious approach to managing inflation risks, particularly those tied to Trump's tariffs. Despite the president's ongoing attacks on Powell, the Fed remains focused on its dual mandate of maximum employment and stable prices.

The Fed's latest statement acknowledged that uncertainty has come down, though it warned that the risk is still elevated. The committee added that it is attentive to the risks to both sides of its dual mandate. The new forecast removed one rate cut from the 2026 and 2027 projections, leaving only four more expected cuts through 2027, totaling one percentage point.

References:
[1] https://qz.com/trump-federal-reserve-jerome-powell-kevin-warsh-1851777307
[2] https://www.bbc.com/news/articles/cjwn3pxpgyvo
[3] https://www.cryptopolitan.com/fed-keeps-interest-rates-unchanged/