The Federal Reserve announced Wednesday it will leave interest rates unchanged as President Donald Trump’s tariff policies weigh on economic growth.
Although inflation receded last month, an escalating trade war threatens to hike prices on consumer goods going forward.
“Tariffs on aluminum, steel and oil are essential elements to production across a wide range of products,” said Brett House, an economics professor at Columbia Business School. “Those price increases are going to ripple more widely across the American economy.”
National Economic Council director Kevin Hassett recently warned of “some uncertainty” in the weeks ahead because of the United States’ tariff agenda.
The inflation risk from tariffs ensured the central bank would take a more cautious approach, according to House. “Greater uncertainty in the world means the Fed is more predictably in a wait-and-see mode,” he said.
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The federal funds rate sets what banks charge each other for overnight lending, but also influences many of the borrowing and savings rates Americans see every day.
When the Fed hiked rates in 2022 and 2023, most consumer borrowing costs quickly followed suit. Even though the central bank began to lower its benchmark rate at the end of last year, consumer rates are still elevated, with credit card annual percentage rates down only slightly from an all-time high.
