Will the US Fed Wait for Significant Economic Weakness Before Lowering Rates?
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Synopsis
The US Federal Open Market Committee (FOMC) has decided to maintain the federal funds rate amidst ongoing geopolitical tensions and trade uncertainties. With a focus on maximum employment and controlling inflation, experts suggest that any rate cuts may not occur until significant signs of economic weakness are observed.
Key Takeaways
- The federal funds rate remains at 4.25-4.5 percent.
- Economic activity in the US is expanding, with low unemployment.
- The Fed's current approach is aimed at achieving maximum employment and controlling inflation.
- Significant economic weakness is needed for any rate cuts.
- Geopolitical tensions and trade issues are key factors to monitor.
New Delhi, June 19 (NationPress) The decision by the US Federal Open Market Committee (FOMC) to keep the federal funds rate fixed at 4.25-4.5 percent is commendable, especially in the context of ongoing geopolitical tensions, trade uncertainties, and the US government's recent choice to pause tariffs for 90 days, according to economists and industry analysts on Thursday.
The United States is experiencing an uptick in economic activity, with the unemployment rate remaining low.
“While uncertainty regarding the economic outlook has lessened, it is still high. The Federal Reserve's current approach to interest rates is praiseworthy given the increased unpredictability about the economic landscape; it aims to support maximum employment and bring inflation back to a 2 percent target,” stated Hemant Jain, President of PHDCCI.
Compared to last month, US Fed Chair Jerome Powell expressed greater concern about inflation driven by tariffs, noting, “Ultimately, the cost of the tariff must be borne, and part of this burden will fall on the end consumer.”
Nonetheless, he indicated that there are no immediate signs of economic weakening and that the Fed is “well positioned” to monitor the eventual consequences of tariffs.
“The Fed is expected to wait for significant signs of weakness in the labor market before making any moves (while also disregarding temporary price spikes caused by tariffs), suggesting that a rate cut might not occur until September. Current market pricing reflects this sentiment, with a 63 percent likelihood for a cut, while July stands at only 10 percent,” as noted by Emkay Global Financial Services.
The Fed has revised its 2025 GDP forecast downward to 1.4 percent (a decrease of 30 basis points) and increased its core CPI estimate to 3.1 percent (an increase of 30 basis points), underscoring the challenging macroeconomic situation characterized by rising price pressures and slowing growth.
“US equity indices remained largely stable, yet short-term Treasury yields experienced fluctuations. A potential 50 basis points rate cut in 2025 could enhance global liquidity and positively impact Indian markets, though risks related to Middle Eastern tensions and trade tariffs may curb potential gains,” remarked Vaqarjaved Khan from Angel One.
Moving forward, experts expect the Fed to keep evaluating the influence of new information on economic prospects and be prepared to adjust monetary policy as required should any risks emerge.
Point of View
My perspective aligns with the nation's interests. The Federal Reserve's cautious stance is essential in navigating the complexities of the current economic landscape, ensuring that any decisions made are in the best interests of employment and inflation targets for the broader economy.
NationPress
19/06/2025
Frequently Asked Questions
What is the current federal funds rate set by the US Fed?
The federal funds rate is currently set at 4.25-4.5 percent.
What factors influenced the Fed's decision to maintain the rate?
Geopolitical tensions, trade uncertainties, and the recent tariff pause by the US administration played significant roles.
When can we expect the next rate cut?
Experts suggest the next rate cut may not occur until September, depending on the labor market's performance.
How does the Fed's decision impact inflation?
The Fed aims to return inflation to its 2 percent target while supporting maximum employment.
What are the potential risks that could affect the economy?
Risks include Middle Eastern tensions and ongoing trade tariffs, which could limit economic growth.
