Fed Chair Jerome Powell left its key interest rate unchanged again Wednesday May 7th and gave no hint of plans to lower the interest rate anytime soon, as tariffs raise the risks of either another inflation spike or recession. The central bank lowered the rate by a percentage point late last year as a pandemic-related price surge eased but has paused since as it gauges the impact that tariffs may have on the economy.
The Fed raises rates or keeps them high to fight inflation and lowers them to jolt a struggling economy. The tariffs can create both higher prices and weak growth or a recession as households reduce spending. This leaves officials torn between their two mandates. He did mention that they will prioritize inflation to ensure a possible one-time price rise from tariffs doesn’t affect consumer spending and business growth expectations.
We want interest rates to come down because inflation pressures are easing, not because the economy is weakening. The US economy contracted last quarter for the first time since 2022. Not sure what more the Fed needs to see. A contracting economy is a huge red flag.
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