Fed Leaves Interest Rates Unchanged, Citing Trump’s Economic Policies
By PATRICK LAVERY
Though often guided by the decisions and directives of the executive branch, it is relatively rare for the Federal Reserve Board to publicly make reference to the policies of a presidential administration – save for an extenuating circumstance such as the COVID-19 pandemic – when announcing the reasons for the board’s own decisions.
Yet that is what happened at the conclusion of the latest Federal Open Market Committee meeting on Wednesday as Federal Reserve Board Chairman Jerome Powell said market- and survey-based measures, and survey respondents including consumers and businesses alike, are skittish about the tariffs enacted by President Donald Trump’s office, and the subsequent retaliatory measures taken against the United States.
Since inflation has come down in the past two years yet remains elevated above the Fed’s long-term 2% goal, the FOMC voted to maintain its key interest rate at a range of 4.25% to 4.5%, the almost unanimously predicted choice experts said the committee would make in its second summit of 2025.
“The new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” Powell said in prepared remarks to the media Wednesday afternoon. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”
Samir Dedhia, CEO of One Real Mortgage, was among the many who believed the Fed would take no action on Wednesday, as illustrated in a statement released as the FOMC convened Tuesday morning.
“Lingering uncertainties – particularly the potential impact of new tariffs on trade – have made the Fed cautious about shifting its stance too soon,” Dedhia said. “Tariff discussions, especially regarding imports from China, could drive up the cost of goods, adding inflationary pressure at a time when the central bank is striving to maintain stability.”
According to the year’s first Summary of Economic Projections, released by the Fed on Wednesday along with its decision on monetary policy, the median projection for inflation to cool to an even 2.0% now does not arrive until 2027. The 2.7% median estimate for this year and 2.2% for next are slightly higher, Powell said, than when the last SEP was issued in December.
Despite the Fed’s stated uncertainties, however, it is helpful for prospective homebuyers to remember that the federal funds rate, while across-the-board influential, does not dictate or mandate movement in mortgage rates, although the two are inevitably linked.
Dedhia said those looking to make a move in the housing market should not be discouraged.
“For consumers, the decision to hold rates steady comes as mortgage rates have declined over the past two months, providing some relief in home affordability,” Dedhia said. “This trend has encouraged more buyers to enter the market; while other borrowing costs, such as credit card and auto loan rates, may remain elevated in the near term, the overall direction of interest rates signals a more favorable environment for homebuyers and businesses looking to plan long-term financial decisions.”
The next FOMC meeting is scheduled for May 6 and 7.