18 June 2025
If you are covering the Federal Reserve’s latest interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter:
“Amidst the geopolitical and economic chaos, the Federal Reserve has opted to keep its foot off the pedal and continue to hold rates. The move - or lack thereof - seemed inevitable given President Trump’s tariffs are still yet to be finalised but look likely to weigh further on the economy in the coming months, particularly as the 90 day pause nears its end, and the turmoil in the Middle East remains unpredictable.
“In the March release of the policy makers' dot plot, two more rate cuts were anticipated this year. Now, while the median remains the same for 2025, it seems progress towards lower interest rates could slow even more as policy makers were split over whether there would be no cuts or even as many as three. The Fed's ‘slow and steady’ approach could spark further tension with Donald Trump, whose pressure to cut rates has had little effect.
“Trump believes lower inflation is reason enough for the central bank to cut rates, but while inflation came in slightly softer than expected in the 12 months to May, it was still a rise that pushed it even further away from the Fed’s 2% target. Similarly, core inflation remained stuck at 2.8%, adding pressure to the Fed’s dual mandate balancing act between maintaining price stability and managing employment risks.
“Ultimately, the Federal Reserve will be keeping a close eye on the risks of higher prices in the coming months as the real impacts of tariffs start to play out, as well as how the labour market is holding up. In its latest projections, the Fed is gearing up for lower growth, higher unemployment and higher interest rates than had been previously hoped. Inflation is likely to climb higher yet, but if the jobs market weakens considerably without a spike in inflation, then the Fed may find itself backed into a corner and a cut sooner rather than later may become inevitable.
“Trump has repeatedly fired insults at Jerome Powell, and we can expect today’s hold on rates to further ruffle his feathers. While Trump has confirmed he will not look to remove Powell before the end of his term – a move that would likely be met with legal challenge anyway – time will tell whether he looks to position a ‘shadow’ Chair in an attempt to sway policy. Investors will be watching closely to assess how this progresses and what impact it may have on markets.”
