Fed rate and tariffs: Why interest is unchanged again, and what it means for you
Fed Chair Powell: Interest rates hold steady
Federal Reserve Chair Jerome Powell announced Wednesday that interest rates remail steady. The risk for higher inflation and unemployment rates has increased, though, according to Powell. "Despite heightened uncertainty, the economy is still in a solid position," Powell said during a news conference, referring to President Trump's tariffs. Barron's Paul La Monica joins LiveNOW's Andy Mac to break down this announcement and other economic headlines.
The Federal Reserve announced Wednesday it was once again keeping its key rate unchanged for several more months as it waits to see the effects of President Donald Trump’s tariffs.
Fed keeps interest rate unchanged
Big picture view:
The Federal Reserve’s decision Wednesday to stay the rate was predictable, as it’s been evaluating the impact of Trump’s tariffs and how they could affect consumer prices and the economy.
Tariffs typically cause a one-time increase in prices, but not necessarily ongoing inflation.
The White House had been pushing for a rate cut.
RELATED: U.S. economy shrank in first quarter; first drop in three years
What they're saying:
With inflation not far from the Fed's 2% target for now, Trump and Treasury Secretary Scott Bessent argued that the Fed could reduce its rate.
But the Fed said Wednesday that the risks of higher unemployment and higher inflation have risen.
The New York Stock Exchange (NYSE) in New York, US, on Wednesday, May 7, 2025. Photographer: Michael Nagle/Bloomberg via Getty Images
Dig deeper:
Tariffs could both lift inflation by making imported parts and finished goods more expensive, while also raising unemployment by causing companies to cut jobs as their costs rise.
The backstory:
The Fed pushed the rate higher in 2022 and 2023 to fight inflation. Inflation has cooled considerably from its peak in 2022.
What is the interest rate?
By the numbers:
The Fed kept its rate at 4.3% for the third straight meeting, after cutting it three times in a row at the end of last year.
How does the Fed’s interest rate affect Americans?
Why you should care:
If the Fed were to cut the interest rate, it could lower other borrowing costs, such as for mortgages, auto loans and credit cards, helping boost the economy – though lower interest rates risk pushing inflation back up.
What's next:
All eyes are on the effects of Trump’s tariffs.
One scenario:
If the uncertainty of their impact delays hiring, slows the economy and pushes up the unemployment rate, the Fed could quickly shift toward cutting the rate. A sharp economic slowdown could eventually cool inflation by itself, economists say.
Another scenario:
If Trump announces further tariffs, or if Americans worry that inflation will get worse, that could send prices higher in a self-fulfilling way. If Americans think prices will rise, they can take steps that push up costs, economists say, such as asking for higher wages. Depending on the increase, the Fed’s rate could remain the same throughout the year - or be possibly raised again to dampen increasing prices.
RELATED: Here's how many Americans now say inflation is their top financial worry
Look ahead:
The Fed’s next meeting is June 17-18.
The Source: Information in this article was taken from The Fed’s interest rate decision, announced May 7, 2025, at the end of its policy meeting. Background information about tariffs, inflation and the economy was taken from previous FOX Television Station reportings and The Associated Press. This story was reported from Detroit.