The Federal Reserve is maintaining its patient approach to monetary policy for at least another month, announcing Wednesday that the federal funds rate will stay in the range of 4.25% to 4.5% for the time being. That benchmark overnight lending rate impacts borrowing costs and has an indirect effect on mortgage rates by influencing Treasury yields.
“The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated,” the Fed noted in a press release. “Uncertainty about the economic outlook has diminished but remains elevated.”
According to the Fed’s “dot plot,” released as part of its Summary of Economic Projections, the central bank still sees two quarter-point rate cuts as a possibility this year.
The move by the 12-member Federal Open Market Committee (FOMC) to keep rates unchanged in June was almost universally expected, as Fed governors in recent months have expressed concerns about the potential inflationary impacts of the Trump administration’s tariff policies, and a rate cut could have the unintended consequence of exacerbating inflation even as it stimulates the economy.
Minutes from the May FOMC meeting also revealed a Fed concerned about the possibility of stagflation, which is a combination of stagnant economic growth, high inflation and elevated unemployment.
President Donald Trump, who has pressed Fed Chairman Jerome Powell to lower rates for the past several months, called the central banker a “stupid person” in comments to reporters prior to the Fed announcement, according to USA Today. Trump reportedly dismissed inflation concerns and said he’d like to see rates lowered by 2% to 2.5%.
Highlights from the Powell press conference
In his press conference following the rate decision announcement, Powell cited Trump’s tariffs as a primary reason for the Fed’s wait-and-see approach on rate cuts.
“Increases in tariffs this year are likely to push up prices and weigh on economic activity, Powell said in prepared remarks. “The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It’s also possible that the inflationary effects could instead be more persistent.”
Powell added that the Fed thinks it will “learn a great deal more over the summer on tariffs.”
The Fed chair also weighed in on the state of the housing market during the Q&A portion of the media event, acknowledging that there is a “longer-run shortage of housing” combined with high mortgage rates.
“I think the best thing we can do for the housing market is to restore price stability in a sustainable way and create a strong labor market,” Powell observed.
At one point, Powell pushed back on the idea that Fed monetary policy is overly restrictive and interest rates are too high. He called the current policy position “modestly restrictive.”
“They’re not very high,” he said of interest rates. “Let’s be honest.”
The normally even-keeled Fed chair bristled slightly when pressed on whether Trump’s persistent attacks on the Fed have weighed on investor and consumer confidence levels.
“From my standpoint, it’s not complicated,” Powell responded. “What everyone on the FOMC wants is a good, solid American economy with a strong labor market and price stability. That’s what we want. We think our policy is well positioned right now to deliver that and to be able to respond in a timely way.”
