Fed Holds Rates at 4.25%–4.5% for Third Meeting Amid Trump Tariffs and Inflation Risks, Powell Leads Cautious Approach

The U.S. Federal Reserve announced on May 8, 2025, that it would maintain the federal funds rate at 4.25% to 4.5%, marking the third consecutive meeting without a change in the benchmark interest rate. This decision came amid concerns over the economic impact of sweeping tariffs imposed by the Trump administration on major U.S. trading partners. Despite President Donald Trump's calls for a rate cut, the Fed emphasized a cautious approach, citing rising risks of both higher inflation and increased unemployment. Fed Chair Jerome Powell highlighted the need to avoid rushing into rate changes given ongoing economic uncertainties. Officials including Fed's Williams and Musalem noted that the details and timing of the tariffs' impact on inflation remain unclear. Musalem indicated that while rate cuts remain possible if inflation proves short-lived and the economy weakens significantly, the tariff effects on inflation could be either brief or more enduring. The Fed's stance reflects a wait-and-see approach to better understand the tariffs' influence on inflation before adjusting monetary policy.