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Tariffs hit US economy forecast but the Fed unmoved by latest Trump threats with no change to interest rates
The US central bank has made no change to interest rates and warned the world’s biggest economy will see less growth and higher inflation due to tariffs.
The Federal Reserve, known as the Fed, held rates despite President Donald Trump calling its chair, Jerome Powell, a “stupid person” on Wednesday.
“Maybe I should go to the Fed. Am I allowed to appoint myself at the Fed? I’d do a much better job than these people,” Mr Trump said.
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Despite appointing Mr Powell himself in 2017, Mr Trump has expressed anger towards the Fed chair at multiple points in the past for not bringing down borrowing costs through interest rate cuts.
In his own address to reporters, Mr Powell declined to hit back.
The tariff effect
But Mr Trump’s signature economic policy of tariffs – taxes on imports – was again forecast to cause higher inflation and lower economic growth in the US.
The Fed’s predictions for inflation were upgraded to 3.1% for 2025 from 2.5% in December, while the outlook for US economic growth was downgraded to 1.4% from 2.1% in December.
The effect of those extra taxes on imports will take time to work its way through the system and show up in prices on shelves, the Fed chair said.
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An uncertain outlook
While the level of uncertainty peaked in April, when Mr Trump announced many of his tariffs, and has since fallen, it remains elevated, Mr Powell said.
The exact impact of the levies is unclear and depends on the levels they reach, he added.
Many of the country-specific tariffs have been paused for 90 days, which is currently due to end on 8 July.
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Despite this, the economy is in a “solid position”, Mr Powell said.
Interest rates were kept at 4.25%-4.5%. Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.
A slowdown in the US economy can have an impact on the UK as the US is its largest trading partner.
On Thursday, it’s the turn of the UK central bank, the Bank of England, to make its latest interest rate determination, with no change also expected.