Lock the White House Watch Newsletter for free
Your Guide to What Trump’s Second Season Means Washington, Business and World
The Federal Reserve cut the outlook for the US economy on Wednesday, and policymakers split over whether Donald Trump’s tariffs could cut interest rates all year long as they pose a higher risk of inflation.
The Fed has put on hold consecutive borrowing costs for the fourth meeting. The seven-person interest rate setter said they expect the federal fund’s target range to remain at 4.25-4.5% for 2025.
In March, only four staff members expected this year to cut interest rate cuts. Eight staff believe that interest rates will be reduced by points this year, compared to nine in March.
New forecasts have led to the world’s largest economy growing to 1.4% in 2025. It is significantly weaker than last year, with unemployment rates rising from the current level of 4.2% to 4.5%, while personal consumption spending rose from 2.1% in April to 3%.
In March, the median forecast for US rate setters was that the economy would expand by 1.7%, unemployment rates increased to 4.4%, and consumer spending costs increased to 2.7%.
Treasury yields fell, and US stocks jumped following the decision. Two-year yields with a move to have an interest rate forecast have fallen to session lows.
Fed officials have shown that President Trump’s tariffs will increase the risk of stagflation, boost inflation and slow economic growth. Two officials say interest rates will fall only once compared to Trump’s “liberation day” announcement. The two staff members still hope for a three-quarter point cut.
This is a developing story
