Fed holds rates steady at 4.25%–4.50% in May 2025: Cautionary signal amid economic uncertainty

At its May 6–7, 2025 meeting, the Federal Open Market Committee (FOMC) voted to maintain the federal funds rate at 4.25%–4.50%, marking the third consecutive hold since December 2024. federalreserve.gov

The main reason the Fed chose to "hold rates"

Fed Chair Jerome Powell said the increasing uncertainty over U.S. trade policy, particularly import tariffs, has led the Fed to exercise caution in implementing monetary policy. The Fed is still unable to clearly assess the long-term impact of the tariffs on the economy.

Current economic situation

• Inflation : Remains above the Fed's 2% target, most recently hovering around 3%.

• Economic Growth : GDP in the first quarter of 2025 contracted by 0.3%.

• Labor Market : Remains strong with low unemployment rate.

The situation reflects the risk of "stagflation", or a slowing economy with high inflation, which is a challenge for the Fed in implementing monetary policy. Fidelity

Future trends

While some markets expect the Fed to cut rates as late as 2025, several Fed officials, including New York Fed President John Williams and Atlanta Fed President Raphael Bostic, have stressed the need to be patient and wait for more economic data before making any decisions. Investopedia

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