The Federal Reserve holds steady, Powell emphasizes tariff risks

On Wednesday evening Eastern Time, the Federal Reserve announced it would maintain the federal benchmark interest rate between 4.25% and 4.50%, aligning with widespread market expectations. This marks the third consecutive time the Federal Reserve has kept rates unchanged, indicating that policymakers prefer to maintain the status quo amid a progressively complex economic outlook to observe subsequent developments.

Rationale Behind Steady Rates

In its statement, the Federal Reserve highlighted that despite recent increased volatility in import and export data, several indicators continue to show that U.S. economic activity remains robust. For instance, the unemployment rate stays at a low level, and the labor market is strong. However, the inflation rate remains above the 2% target, posing a continuing policy dilemma for decision-makers.

The committee stated that in assessing whether to adjust rates in the future, it would closely monitor newly released economic data and changes in the macroeconomic outlook. Meanwhile, the Federal Reserve will continue to reduce its holdings of Treasury securities and agency debt assets, gradually withdrawing the liquidity provided by quantitative easing policies.

Powell Responds to Market Concerns: Tariff Risk Significantly Rises

Federal Reserve Chairman Jerome Powell made it clear in a subsequent press conference that there is currently no reason to take preemptive rate cuts. He stated, "We cannot act rashly without more data," and repeatedly emphasized the robustness and flexibility of policy.

Powell specifically mentioned the tariff policies announced by the Trump administration in early April, describing them as "far exceeding previous expectations" and considered them a key uncertainty factor in the economic outlook. He said that although it is still difficult to assess the full economic impact of tariffs, if tariffs remain high for an extended period, the Federal Reserve might face higher inflation and greater unemployment pressure, delaying the central bank's timetable for achieving its inflation target.

"We may have to wait until next year to achieve the goal of inflation stabilizing and declining," Powell admitted, but he also acknowledged, "There remains significant uncertainty about the scale, scope, and duration of tariffs."

Response to Political Pressure: Independence Above All

When asked about his relationship with President Trump, Powell reiterated the Federal Reserve’s independence. "I have never requested a meeting with any president, nor will I ever do so," he stated. The Federal Reserve’s decisions are entirely based on economic data and policy goals, not any political pressure.

He emphasized again, "Our objectives have always been consistent—maximum employment and price stability, which is our commitment to the American people."

Views on Fiscal Deficit: Distinct Responsibilities

Regarding the fiscal deficit issue, Powell pointed out that the U.S. federal debt level is on an "unsustainable path," but he stated he would not make recommendations on fiscal policy to Congress. "That is not our responsibility," he firmly asserted, "just as they do not tell us how to set interest rates."

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