A Long Way Down: Fed Still Holds Rates Steady

Earlier this week, the Fed decided to keep its policy rate steady for the third consecutive time this year. Following a two-day meeting of the Federal Open Market Committee (FOMC), Fed chairman Jerome Powell announced that the target range for the federal funds rate would be kept at 4.25 to 4.50 for the time being, saying that the tariff impact on prices and the economy is still unclear and that the Fed would wait for more data before making any adjustments. "We don't have to be in a hurry," Powell said. "We're in a good position to wait and see."

While Powell and his colleagues are in no rush to abandon their relatively hawkish stance, President Trump has been asking for rate cuts for weeks amid the self-inflicted market turbulence caused by the administration's tariff policy. "'Too Late' Jerome Powell is a FOOL, who doesn’t have a clue," Trump wrote on social media after the Fed's decision, claiming that there is "virtually no inflation" and that lowering interest rates would be "like jet fuel" for markets.

In his press conference following the meeting, Powell acknowledged that the Fed may find itself in a difficult spot soon, as it expects tariffs, if kept at the current level, to generate a rise in inflation and an increase in unemployment. To keep inflation in check, the Fed would have to raise rates, while an increase in unemployment would usually call for rate cuts. "We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension," Powell said, hinting that he and his colleagues might prioritize fighting inflation in such a scenario. "We will balance our maximum employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans," he said.