WASHINGTON — May 9, 2025 —
In a move that underscores the ongoing volatility in the financial world, the Federal Reserve announced it would maintain its current key interest rates.[[2]] This decision, made in Washington, D.C., means the central bank will keep rates between 4.25% and 4.50 percent. The Fed’s primary tool to tackle inflation is managing interest rates. For a more in-depth analysis, continue reading.
Federal Reserve Holds Steady Amidst Economic Uncertainty
Washington – The U.S. Federal Reserve (Fed), the central bank of the United States [[2]], has decided to maintain its key interest rates, according to an declaration made in Washington. The rates will remain in a range of 4.25 to 4.50 percent. This benchmark rate influences the interest rates at which commercial banks can borrow money from the central bank.
Experts had widely anticipated this decision. The Fed had previously reduced interest rates by one percentage point in the latter half of 2024 but has since paused further adjustments.
Trump’s Calls for Rate Cuts addressed
The current economic climate is marked by considerable uncertainty regarding future monetary policy. The situation is further complicated by former President Donald Trump’s past policies, particularly his approach to trade and tariffs.
Trump had frequently criticized the Fed, urging them to lower interest rates. The central bank, however, justified its stance by pointing to the increasing risk of higher inflation, partly attributed to the potential impact of aggressive trade policies.
The Fed’s Inflation Target
A primary objective of the Federal Reserve is to manage inflation, aiming for a rate of two percent. Increasing interest rates is one tool used to combat rapidly rising consumer prices. Higher rates make borrowing more expensive, which can reduce demand and, consequently, slow down price increases. Additionally, higher interest rates encourage saving. Tho, this approach can also lead to slower economic growth.
Last September, the Fed began shifting its policy by increasing rates by 0.5 percentage points, following a significant surge in inflation. This was followed by smaller increases of 0.25 points in both November and December.
despite persistent inflation, the central bank has since refrained from further rate hikes. The Fed projects an average guiding interest rate of 3.9 percent for 2025, suggesting the possibility of two minor rate adjustments later in the year.
Potential Conflict with Trump’s Economic vision
This cautious approach could put the central bank at odds with Trump, who has consistently advocated for lower interest rates. Trump believes that lower rates would stimulate the stock markets, reduce the cost of government borrowing, and boost overall economic growth.
However, the U.S. economy experienced unexpected contraction in the first quarter of the year, a development that challenges the narrative of robust growth.
