Fed Keeps Interest Rates Steady as Economy Walks a Fine Line

ed Holds Rates Steady in May 2025 Amid Inflation and Uncertainty

Powell says things are going well — but inflation, consumer sentiment, and global uncertainty still loom.]

On May 7, Federal Reserve Chair Jerome Powell reassured the public that the U.S. economy is “doing well,” even as uncertainty clouds the road ahead. Following the latest FOMC meeting, the Fed announced it would keep interest rates unchanged at 4.25% to 4.5%, signaling a continued wait-and-see stance.

While Powell acknowledged ongoing concerns — including trade tariffs, higher prices, and sluggish imports — he emphasized that the effects haven’t fully materialized in the data. “The best thing we can do is wait for more clarity,” he said, adding that the right direction tends to reveal itself over time.

At the same time, Powell noted the growing concern over consumer stress and inflation fatigue, but pointed to solid fundamentals: unemployment remains low, job growth is steady, and wages are holding firm. “We’re not seeing a significant rise in layoffs or jobless claims,” he added.

Still, economic uncertainty persists. According to ING’s chief international economist James Knightley, sharp declines in both consumer and business confidence should raise alarms. In his view, targeted measures — like trade agreements and tax relief — may be needed to avoid a downturn or even stagflation.

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In April, the U.S. consumer confidence index fell for the fourth consecutive month, a worrying trend. But for now, the Fed is focused on its dual mandate: managing inflation and supporting employment. The latest data from March showed PCE inflation at 2.3%, slightly above the 2% target.

Financial analyst Greg McBride summed up the dilemma well: “Everyone wants lower rates, but the reason matters. If cuts happen this summer, it might be because the economy is slowing — not because inflation is under control.”

In short: The Fed is staying cautious. The economy is stable, but fragile. And while no immediate rate cuts are planned, the next few months will be critical.

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