The U.S. Federal Reserve has decided to keep interest rates unchanged at 4.25%–4.50%, amid persistent inflation pressures and growing economic risks. The central bank emphasized a cautious stance, navigating a delicate balance between curbing inflation and avoiding a slowdown.
Core Inflation Still Too High
While headline inflation showed modest relief—with the Consumer Price Index (CPI) rising 2.4% year-over-year in March—core inflation (excluding food and energy) remains at an elevated 2.8%, signaling ongoing price pressures across essential goods and services.
“The progress is there, but it’s uneven,” said Fed Chair Jerome Powell during a press briefing. “We are not yet at the point where we can confidently pivot toward rate cuts.”
Economic Growth Slows Amid Uncertainty
Recent data points to slowing GDP growth and declining consumer confidence, triggering concerns about potential stagflation—a mix of stagnant growth and high prices. The Fed acknowledged that rising borrowing costs and geopolitical instability, including trade disputes and global conflicts, continue to complicate the U.S. economic outlook.
“We remain data-dependent and will adjust policy as necessary,” Powell said, warning that a premature rate cut could reignite inflation.
Financial Markets Brace for Extended Tightening
Markets responded cautiously:
- The Dow Jones Industrial Average dipped 0.5%
- Treasury yields inched higher, reflecting expectations of prolonged tight policy
- The dollar strengthened slightly as investors bet on extended Fed hawkishness
What’s Next?
The next CPI report, due May 13, will be crucial in determining whether inflation is on a sustainable downward path. Until then, the Fed is expected to hold rates steady, with no clear signal on when or if rate cuts might begin in 2025.
Economists warn that housing markets, credit access, and small businesses may begin to feel tighter conditions if the Fed stays on hold much longer.
