As was widely expected, the Federal Reserve left interest rates unchanged Wednesday after the Federal Open Market Committee (FOMC) emerged from its two-day monetary policy meeting. As a result, the benchmark federal funds rate that other interest rates take their cue from will stay in the range of 4.25% to 4.5%.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook and the balance of risks,” the Fed stated in a press release. “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective.”
Most economists had predicted that the Fed would take a cautious approach this month and hold off on interest rate cuts until later in 2025.
While the March inflation rate surprised with a lower-than-expected reading, inflation remains above the Fed’s preferred rate of 2%. The Fed typically raises rates when inflation is too high and cut rates during periods of reduced inflation.
A better-than-expected April jobs report, which saw unemployment hold steady at 4.2%, was also seen as an indicator that the Fed would likely leave the fed funds rate unaltered.
The Fed is also dealing with economic uncertainty, as the Trump administration’s mercurial tariff policies have upended the global trade order and thrown a wrench into the interpretation of typical economic data.
Federal Reserve Chairman Jerome Powell addressed tariffs in a press conference following the announcement, noting that significant uncertainty exists, which makes it difficult to assess the impacts of tariffs on inflation and unemployment.
“I think there’s a great deal of uncertainty about, for example, where tariff policies are going to settle out, and also, when they do settle out, what will be the implications for the economy for growth and for employment. I think it’s too early to know that,” Powell said. “So, ultimately, we think our policy rate is in a good place to stay as we await further clarity on tariffs and ultimately their implications for the economy.”
Powell also said the decision by the FOMC to hold interest rates steady was unanimous. But he dodged the question of if the Fed could change its stance on interest rate cuts as soon as its June meeting.
“We don’t feel like we need to be in a hurry,” Powell said. “We feel like it’s appropriate to be patient, and when things develop, of course, we can move quickly when that’s appropriate. But we think right now, the appropriate thing to do is to wait and see how things evolve.”
The Fed chair also said he isn’t concerned about the controversy stirred by President Donald Trump, who has consistently slammed the Fed on social media for delaying rate cuts. Powell said the Fed is solely focused on achieving its dual mandate of maintaining stable prices and maximum employment.
“It doesn’t affect doing our job at all,” Powell flatly replied in response to a question about Trump’s involvement in the monetary policy narrative.
Mortgage rate impacts
Selma Hepp, chief economist at Cotality, weighed in on the Fed’s wait-and-see approach and the impacts it may have on mortgage rates.
“The Fed is trying to straddle keeping inflation moving towards the target and ensuring employment doesn’t cool considerably more — not an easy task given the current policy context,” Hepp said in a statement provided to Scotsman Guide.
Hepp added: “One thing is for certain, interest rates are highly unlikely to dip down to 2021 levels, when rates hovered around 3%. We foresee a 6% mortgage rate, or higher, to be the new normal for the 30-year fixed mortgage for the next two years.”
