The US Federal Reserve is clearly grappling with heightened uncertainty in the American economy, largely stemming from President Donald Trump’s sweeping and still-evolving policy shifts. At its latest meeting, the Fed opted to keep its policy rate steady at 4.25–4.5 percent, pointing to risks from trade turbulence linked to tariff uncertainties, rising inflation, and increasing unemployment.
The Fed’s caution was reflected in several comments from Chairman Jerome Powell. While Powell emphasized that the US economy is expanding at a “solid pace,” he acknowledged that it’s unclear whether this momentum will persist or whether the economy might falter under the weight of Trump’s policies. A piece in today’s Financial Times — “The Fed Digs In” (available free to MCPro subscribers) — suggests the Fed may be quietly concerned about stagflation. Although it is not formally predicting a rise in both prices and unemployment, the central bank appears to be using that risk as justification for holding rates steady until fresh data signals otherwise.
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Economists warn that hopes for a rate cut may have to wait until September, making this a potentially dry summer for any interest rate easing. After a bold one-percentage-point cut earlier, the Fed has clearly adopted a “wait and watch” approach.
In contrast, central banks across Europe and Asia are decisively moving toward easing. Analysts expect the European Central Bank to cut rates this quarter, while countries like India and China maintain a clear tilt toward more accommodative monetary policies.