The United States Federal Reserve maintained the benchmark rate at a range between 4.25% and 4.5% at Wednesday’s meeting. This comes after the Fed held rates at this level at its prior meetings in January, March and May, after cutting rates at the final three meetings in 2024. Today’s decision, which was a unanimous vote, was widely expected. The US dollar has showed little response to the Fed decision.
FOMC Statement Dovish, Notes Concern about Inflation, US Economy
The Federal Open Market Committee (FOMC) statement noted that, “the unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated”. The statement added that concern about the economic outlook “has diminished but remains elevated”.
Federal Reserve Chair Jerome Powell reiterated the message of the FOMC statement at his press conference, saying that “despite elevated uncertainty, the economy is in a solid position. Powell said that the labor market was in good shape and inflation had dropped significantly but was still above the 2% target.
Powell: Tariffs Starting to Affect Inflation
Powell also discussed the US tariffs, saying that although recent inflation readings had been “favorable”, the Fed was “beginning to see some effects” of tariffs on inflation and that he expected upcoming inflation reports to reflect higher inflation as the tariffs continued to filter through the economy.
US President Trump has been highly critical of Powell for not lowering interest rates but Powell has stuck to his guns. Powell again defended his position on Wednesday, saying that the Fed’s current stance leaves it “well positioned to respond in a timely way to potential economic developments.”
The Fed also released its “dot plot”, a chart of where each FOMC member thinks interest rates are headed. The dot plot showed members expect two interest rates in 2025 and one more cut in 2026 and 2027.
US Dollar, Stock Markets Shrug after Fed Announcement
The US dollar showed little reaction to the Fed decision. USD/JPY, EUR/USD and GBP/USD are showing limited movement on Thursday. The exception has been AUD/USD, which is down 0.49%, and NZD/USD , which has declined 0.75%. These declines are likely due to a soft Australian employment report on Thursday. US stock markets showed virtually no reaction in the aftermath of the Fed decision. The S&P 500 Index declined 1.85 points (0.03%) on Wednesday and closed at 5,980.The Nasdaq 100 Index rose 0.61 point (0.0028%) and closed at 21,719.