7 May 2025
If you are covering the Federal Reserve’s decision to leave interest rates unchanged, please find below a comment from Lindsay James, investment strategist at Quilter:
“Much to Donald Trump’s chagrin, the Federal Reserve has chosen to hold interest rates in the face of weakening economic data. The Fed is keen to stress the potential for higher inflation as a result of the President’s policies and thus rate cuts cannot be expected by the market until late July at the earliest. For now the focus for the Fed is clearly on maintaining price stability in the face of anticipated inflationary pressures from tariffs, even though it hasn’t yet shown up in the hard data.
“Whilst it has a dual mandate, which also requires them to set policy in order to pursue maximum employment, so far the labour market has been holding up better than many expected with the recent labour market report showing a healthy 177,000 jobs were added in April, whilst unemployment remains at 4.2%. The Fed, however, expects unemployment to rise too, making its task incredibly tricky and increases the risk of policy misstep. Unfortunately for the President, that means Jerome Powell and the FOMC will likely act cautiously.
“More clarity may emerge by July 8th, the end of the 90-day negotiating window, when it may become clearer to what degree reciprocal tariffs could be reintroduced, cancelled, or further paused, leaving a 10% baseline tariff and sector specific tariffs. However, this still leaves the issue of an effective trade embargo with China to resolve, and as yet no clear sign of progress.
“With the Drewry World Container Index showing shipping rates have now fallen around 45% on the crucial Shanghai to Los Angeles route since inauguration day, it’s an indicator that demand has sharply dropped as trade is put on hold, pending a hoped-for agreement. The longer both sides hold out, the harder it will be to avoid the inevitable price pressure as stockpiles are steadily eroded.
“The conditions are ripe for markets to be buffeted for a while longer as you have the threat of rising inflation and unemployment during weakening economic growth. The Fed is in for a tough few months to come as a result.”
