Fed Holds Rates at 4.25%-4.5% as Trump Tariffs Reach 145%, Powell Warns of Uncertainty

The U.S. Federal Reserve has decided to maintain the federal funds rate at 4.25% to 4.5% following its May 2025 meeting, marking the third consecutive decision to keep rates steady. Chair Jerome Powell emphasized a 'wait-and-see' approach, citing persistent inflation, a strong labor market with 177,000 jobs added in April, and growing economic uncertainty. Powell highlighted that the Trump administration's recently announced tariffs are significantly larger than anticipated and have introduced new risks. He warned that if these tariffs are sustained, they are likely to lead to higher inflation, slower economic growth, and increased unemployment. Some tariffs have been paused for 90 days, but tariffs on imports from China now reach 145%. Recent data shows U.S. GDP shrank in the first quarter, partly due to a surge in imports ahead of the tariffs. Core PCE inflation stands at 2.5%. The Federal Reserve signaled it is not in a hurry to cut rates and will respond to economic developments as they unfold. Powell stated that political pressure, including criticism from President Trump for not lowering rates, will not affect the Fed's policy decisions. Powell also noted that the economic effects of the new tariffs remain highly uncertain and that any resolution will depend on ongoing trade negotiations. The Fed acknowledged a decline in business and consumer sentiment, with some companies pausing investment decisions amid the uncertainty. According to CME FedWatch, there is an 80% probability the Fed will hold rates steady at its next meeting in June, with most economists not expecting a rate cut at that time.