Fed Pauses on Rate Cut Due to Uncertainty of Tariffs

New York, NY, May 8, 2025-"The Federal Reserve warned that tariffs were raising risks of higher unemployment and higher inflation when officials unanimously agreed to hold interest rates steady on Wednesday,” reports the Wall Street Journal.

“‘If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,’ Fed Chair Jerome Powell said at a news conference.

“Tariffs represent a shock that can decrease an economy’s ability to supply goods or services while sending up prices. The unpredictable rollout of increased duties on imported goods threatens to sap profits and chill new investment until businesses have more clarity on their underlying cost structure.

“The policy changes pose a dilemma for the Fed, which has to decide whether to focus more on the potential for inflation to go up or more on the risk of rising unemployment.

“Stocks ended the day higher. Expectations of a rate cut at the Fed’s next meeting in mid-June declined Wednesday. Powell said officials felt like the costs of waiting to learn more about the economy were “fairly low.” He used the term “wait and see” 11 times on Wednesday.

“‘We don’t feel like we need to be in a hurry. We feel like it’s appropriate to be patient,’ he said. ‘And when things develop, of course, we have a record of-we can move quickly when that’s appropriate.’

“Investors broadly expect the Fed to cut interest rates by the second half of the year.