Wednesday, May 7, 2025

Fed keeps rates the same, and Trumpian idiocy keeps them from making moves

No surprise that the Federal Reserve Open Markets Committee kept interest rates at the same level today. The underlying economy hasn't gone into recession as far as we can tell, and the full effect of inflationary tariffs hasn't hit store shelves. But what was worth looking at was if the Fed statement would give clues about what they thought might happen with the economy in the near future.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
Mostly a non-statement, although "higher uncertainty" is not something Wall Streeters usually like to hear from central bankers. So there was a post-meeting wobble in the stock market after the 2pm Eastern release of the Fed statement, but it mostly recovered to the pre-2pm level by the time the market closed.

And Fed Chair Jerome Powell repeated that theme when he met with the media a 1/2 hour after the rate decision.
Fed Chair Jerome Powell knocked down any notion of taking preemptive rate cuts as inflation is still running above target. “It’s not a situation where we can be preemptive, because we actually don’t know what the right responses to the data will be until we see more data,” Powell said.

The Fed has been on hold since its last cut in December as it waits to evaluate the tariff impact....

“What looks likely — given the scope and scale of the tariffs — is that we will see certainly the risks to higher inflation, higher unemployment have increased. And if that’s what we do see — if the tariffs are ultimately put in place at those levels, which we don’t know — then we won’t see further progress toward our goals,” he said. “We might see a delay in that.”

Powell specified that this could delay the Fed’s timeline for the next year or so.

“In our thinking, we would never do anything but keep achieving those goals. But we would at least for the next, let’s say year, we would not be making progress toward those goals — again, if that’s the way the tariffs shake out,” he added. “The thing is, we don’t know that. There’s so much uncertainty about the scale, scope, timing and persistence of the tariffs.”
And let's be honest, if Powell took longer than he should have to lower rates from 23-year highs when inflation was lower than it is now, why would he drop rates and encourage more speculation and higher prices in other areas of the economy? I believe in jobs >>>> inflation, but there's no way we can tell at this time whether inflation or unemployment (or both!) will be heading toward 5% in the coming months, so no changes can or should be done today, and likely for a few months.

Which means that the fault in keeping rates elevated (by 2000s standards, anyway) lies entirely with Donald Trump's big mouth and the GOP Congress that won't reign him in. And I don't think we get this resolved when the Fed next meets in 6 weeks.

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