The Federal Reserve held interest rates steady at 4.25–4.50% on Wednesday, leaving its benchmark unchanged for the fourth straight meeting. No surprises there. But the message from Chair Jerome Powell was clear: don’t assume rate cuts are coming fast—or at all.
Yes, the latest “dot plot” still shows two cuts penciled in for 2025. But Powell pushed back hard on the idea that markets should treat that as gospel. “These are projections, not commitments,” he said, stressing the Fed needs more data before it moves. The big concern now? Inflation might not be done with us.
Tariffs Are the New Wildcard
Powell flagged tariff-driven inflation as a key reason for holding. While recent data shows cooling in prices, Powell warned those numbers are backward-looking. The real test is still ahead. As new import duties kick in, he expects a “meaningful amount of inflation” to show up in the second half of the year.
In short: the Fed doesn’t want to cut into rising prices. And right now, that’s the risk.
Growth Slows, Job Market Softens
The Fed also revised down its GDP forecast for 2025 to 1.4%, and bumped unemployment expectations up to 4.5%. That’s not a recession call, but it’s edging into stagflation territory—where growth flattens, inflation stays high, and the labor market starts to fray.
Even with that outlook, Powell made it clear the Fed isn’t rushing to rescue. Stability first, cuts second. That’s a shift in tone, and Wall Street heard it.
Trump Wants Cuts — Powell Isn’t Budging
President Trump has been loudly demanding faster rate cuts, arguing high borrowing costs are hurting consumers. Powell, without naming names, shut that down. Monetary policy, he said, is guided by inflation and employment—not campaign pressure.
His subtext: political noise won’t move the needle. Numbers will.
What to Watch
All of this sets up a slow, data-heavy summer for markets. Here’s what matters now:
- Inflation readings between June and December. If tariffs hit consumer prices hard, cuts are off the table.
- Labor market data. A sharp uptick in unemployment could force the Fed’s hand—but we’re not there yet.
- September’s dot plot. If there’s a shift in rate projections, it likely happens then.
Bottom line: the Fed’s playing defense. It’s not calling the end of the hiking cycle, but it’s definitely not opening the door wide to cuts either. Powell is holding the line—not because he wants to, but because the data’s not giving him another option.
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A Wall Street veteran turned investigative journalist, Marcus brings over two decades of financial insight into boardrooms, IPOs, corporate chess games, and economic undercurrents. Known for asking uncomfortable questions in comfortable suits.
