Fri, May 09, 2025 page9

• Fed pauses rate cuts again and warns of inflation, unemployment risks

  • AFP, WASHINGTON
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  The US Federal Reserve on Wednesday announced another pause in rate cuts, and warned of higher risks to its inflation and unemployment goals in a likely reference to US President Donald Trump’s tariff rollout.

  Policymakers voted unanimously to hold the US central bank’s key lending rate at between 4.25 percent and 4.50 percent, the Fed said in a statement.

  Wall Street stocks closed higher following the Fed’s decision. Asian and European markets mostly rose yesterday ahead of weekend tariff talks between China and the US, with London boosted by reports that a “major trade deal” flagged by Trump was with the UK.

  

  US Fed Chair Jerome Powell announces that the Fed will not change interest rates following their two-day policy conference in Washington, US, on Wednesday.

  Photo: EPA-EFE

  The “hard” economic data published in recent weeks points toward an economic slowdown, while the unemployment rate has hovered close to historic lows and inflation has trended toward the Fed’s 2 percent target.

  However, the “softer” economic survey data have pointed to a sharp drop-off in consumer confidence and growing expectations of higher inflation over the longer term — in contrast to the market’s inflation expectations, which remain relatively well-anchored.

  Speaking to reporters in Washington after the US central bank’s decision was published, US Federal Reserve Chair Jerome Powell said there was “a great deal of uncertainty” about where the Trump administration’s tariff policies would end up.

  Trump’s moves have sent shivers through world markets, fueled fears of a global recession and speculation of a reordering of decades-old trading norms.

  “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment,” Powell said.

  “The effects on inflation could be short-lived, reflecting a one-time shift in the price level,” he said, adding that it was “possible that the inflationary effects could instead be more persistent.”

  The Fed in its post-meeting statement said that “uncertainty about the economic outlook has increased further,” and that the chances of higher unemployment and inflation had also risen.

  Powell was also asked about public criticism leveled at him and the Fed by senior government officials — including the US president, who has called for him to cut rates to boost economic growth.

  An upbeat Powell said Trump’s criticism did not affect the Fed’s job of tackling inflation and unemployment “at all.”

  “We are always going to consider only the economic data, the outlook, the balance of risks, and that’s it,” he said.

  Analysts do not expect the Fed to move until July at the earliest.

  “Recent job data, including last Friday’s non-farm payroll, indicate solid momentum, allowing the Fed to maintain its current stance,” JPMorgan Asset Management chief Asia market strategist Tai Hui (許長泰) said. “With only one more set of job data expected before the June 17-18 meetings, the likelihood of a rate cut in June is low. The Fed aims to assert its independence amidst pressure from President Trump to reduce rates, requiring significant deterioration in hard data to justify a cut.”
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