The US Federal Reserve is widely expected to extend its rate cut pause on Wednesday as it seeks to chart a path through the economic turbulence unleashed by President Donald Trump’s on-again, off- again approach to tariffs.
Since taking office in January, the Trump administration has ramped up levies on top trading partners including Canada, China, and Mexico — only to roll some of them back — and threatened to impose reciprocal tariffs on other countries, spooking US financial markets, which have slumped in recent weeks.
Many analysts fear Trump’s tariffs, civil service job cuts, and immigration plans could push up inflation and hamper economic growth, and complicate the Fed’s plans to bring inflation down to its long-term target of two percent while maintaining a healthy labor market.
As inflation remains too high, Fed policymakers are likely to hold rates steady at between 4.25 and 4.50 percent, and to signal they will wait for more clarity on the economic impact of the new administration’s policies before contemplating a cut.
“There’ll be no change in the interest rate, and there’s a good reason for that,” former Boston Fed President Eric Rosengren told AFP.
“It’s quite unclear how high the tariffs will get, how widespread they will be, and how long they will last,” he said. “And it’s very hard to estimate what the impact on inflation or unemployment is going to be until they get a little more visibility into that.”
Policymakers on the Fed’s rate-setting committee will also publish updated economic forecasts on Wednesday, with many analysts anticipating trade uncertainty could cause them to increase their inflation outlook slightly, and to downgrade their predictions for economic growth.
