The US Federal Reserve (US Fed) on Thursday morning (IST) decided to keep its benchmark interest rates unchanged at 4.25-4.50% for fourth straight meeting, maintaining its cautious stance amid evolving economic conditions. Federal Reserve Chairman Jerome Powell said the decision to hold rates steady was taken to support the Fed’s dual goals of maximum employment and stable inflation.
“In support of our goals, today the Federal Open Market Committee decided to leave our policy interest rate unchanged. We believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments,” Powell said while announcing the decision.
The Federal Open Market Committee (FOMC), in its statement, noted that it would continue to assess incoming data, the economic outlook, and the balance of risks before making any further changes to interest rates.
The Fed’s Summary of Economic Projections (SEP) showed that the median forecast for GDP growth this year stands at 1.4% and 1.6% for next year. These are slightly lower than the projections made in March.
The US economy grew 2.5% in the previous year, but GDP dipped slightly in the first quarter due to businesses increasing imports ahead of possible tariffs. This swing in net exports complicated GDP calculations.
However, private domestic final purchases (PDFP), which exclude net exports, inventories, and government spending, rose at a healthy 2.5% rate in the first quarter. On inflation, Powell said that while price pressures have eased from their peak in mid-2022, inflation still remains above the Fed’s 2% target. The median projection sees inflation declining to 2.4% in 2026 and 2.1% by 2027.
What Else For US Fed?
The Fed also acknowledged the uncertainty surrounding trade, immigration, fiscal, and regulatory changes. It noted that tariff-related developments, in particular, could continue to impact both inflation and economic growth.
He said, “The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.”
Although expectations of tariff levels have declined since peaking in April, recent increases are still expected to push prices up and slow down economic activity. Looking ahead, the SEP showed that the median projection for the federal funds rate is 3.9% by the end of 2025, 3.6% by the end of 2026, and 3.4% in 2027, slightly higher than earlier estimates.
Powell concluded that the Fed is currently in a good position to wait and monitor how the economy evolves before deciding on any future rate changes.
