Washington: The U.S. Federal Reserve decided to keep its benchmark interest rate unchanged for the third consecutive time, amidst rising economic uncertainty and the risk of increased inflation due to President Donald Trump's aggressive tariff policies.
According to Yonhap News Agency, after a two-day Federal Open Market Committee (FOMC) meeting, the central bank announced the decision to maintain the key rate within the 4.25-4.50 percent range. This choice reflects a cautious approach to monitor and evaluate the impact of Trump's new tariffs, despite his continual advocacy for a rate reduction. The Fed had previously paused rate cuts in January and March, following a quarter percentage point reduction in December.
In a press release, the Federal Reserve expressed concern over the implications of Trump's tariffs, stating, "Uncertainty about the economic outlook has increased further." The Committee highlighted the risks to its dual mandate, which aims for maximum employment and stable inflation at a rate of 2 percent over the long term, noting that the risks of higher unemployment and inflation have escalated.
Federal Reserve Chair Jerome Powell addressed reporters, noting that the recently announced U.S. tariff increases were "significantly larger than anticipated." He warned that if these tariff hikes persist, they could lead to higher inflation, slowed economic growth, and increased unemployment. Powell emphasized the significant uncertainty surrounding the scale, scope, timing, and persistence of these tariffs, which justifies the Fed's current wait-and-see approach.
Powell also remarked on the new phase of trade talks between the Trump administration and America's key trading partners, which could materially impact the economic outlook. He stressed the importance of observing how these negotiations unfold before making any policy adjustments.
When questioned about Trump's calls for a rate cut, Powell clarified that such political pressures do not influence the Federal Reserve's policy decisions. "We are always going to use our tools to foster maximum employment and price stability for the benefit of the American people," he asserted.
Despite concerns over potential price hikes and slowed growth from the new tariffs, Trump has implemented a baseline 10 percent tariff on most U.S. imports, along with 25 percent levies on steel, aluminum, and autos. These policies have been temporarily paused until July 8 to allow for negotiations with trade partners.
This latest rate decision leaves a gap of up to 1.75 percentage points between the key rates of South Korea and the United States. The Federal Reserve has projected two rate cuts this year, a reduction from the four projected in September.