The Federal Reserve kept interest rates unchanged at 4.25%–4.5% on Wednesday, as Chair Jerome Powell warned of rising risks of stagflation amid President Donald Trump’s ongoing trade policies and economic volatility.
Fed Maintains Policy Rate Amid Trade Impact
The central bank has extended its rate pause, holding the benchmark lending rate at 4.25% to 4.5%, as it awaits clearer economic signals. This marks the continuation of a steady stance since January. The Fed cited growing risks of both rising unemployment and inflation—a rare and troubling mix known as stagflation—resulting from a surge in imports and uncertainty stemming from Trump’s tariff strategy.
Stagflation Threat Adds Complexity to Fed’s Outlook
While the economy contracted in early 2025, key indicators such as job growth and core demand have remained resilient. April saw a solid gain of 177,000 jobs, with unemployment steady at 4.2%. Still, the Fed acknowledged a challenging backdrop, with higher import levels widening the trade deficit and reducing GDP.
Powell: Fed Monitoring Labor and Inflation Pressures
In a news conference, Powell said the Fed remains cautious, recognizing that the path of inflation and employment could diverge. He highlighted the potential return of stagflation and outlined how the Fed would prioritize its dual mandate if economic conditions deteriorate.
“We may find ourselves in the challenging scenario in which our dual mandate goals are in tension.”
– Jerome Powell
Balancing Act: Labor Strength vs. Economic Mood
Powell praised the labor market’s strength, noting that steady hiring is helping to keep the Fed’s policy on hold. He also acknowledged rising pessimism among consumers and businesses, driven by trade tensions, but emphasized that these sentiments have yet to translate into sharp declines in economic data.
Insight for Readers
As the Fed walks a fine line between inflation control and job support, a key question emerges: How long can the U.S. economy maintain resilience amid persistent trade disruptions and the looming threat of stagflation?
