The US Federal Reserve kept its key rate unchanged for the fourth straight meeting Wednesday — while predicting two interest rate cuts by the end of 2025. US central bankers have become increasingly split over the appropriate path of policy, with the median of fresh forecasts published on Wednesday still pointing to a half percentage point of rate cuts by year-end. However, a rising minority now expect no rate cuts at all.
The central bank also released its latest quarterly projections for the economy and interest rates on Wednesday. It expects noticeably weaker growth, higher inflation, and slightly higher unemployment by the end of this year than it had forecast in March, before President Donald Trump announced sweeping tariffs April 2. Most of those duties were then postponed April 9. The Fed also signaled it would cut rates just once in 2026, down from two cuts projected in March.
Fed officials see inflation, according to its preferred measure, rising to 3% by the end of this year, from 2.1% in April. It also projects the unemployment rate will rise to 4.5%, from 4.2% currently. Growth is expected to slow to just 1.4% this year, down from 2.5% last year. Despite the gloomier outlook, Fed chair Jerome Powell and other officials have underscored that they are holding off from any changes to their key rate because of the uncertainty surrounding the impact of the tariffs and economic outlook. Many of the Fed’s policymakers have expressed particular concern that the duties could boost prices, creating another surge of inflation just a couple of years after the worst inflation spike in four decades.
Meanwhile Trump has pointed to the mild inflation figures to argue that the Fed should lower borrowing costs — repeatedly criticising Powell and even calling for his dismissal. The President called Powell a ‘stupid’ person ahead of the announcement on Wednesday as he renewed calls for a rate cut.
“So we have a stupid person. Frankly, you probably won’t cut today. Europe had 10 cuts, and we had none. And I guess he’s a political guy, I don’t know. He’s a political guy who’s not a smart person, but he’s costing the country a fortune,,” Trump said in impromptu remarks just outside the White House.
The POTUS has previously argued that a rate cut would boost the economy. Now his focus has shifted to the federal government’s borrowing costs, which have shot higher since the pandemic, with interest payments running at an annual rate of more than $1 trillion. Pushing the Fed to cut rates simply to save the government on its interest payments typically raises alarms among economists, because it would threaten the Fed’s congressional mandate to focus on stable prices and maximum employment.