Fed Holds Rates Steady as Inflation Persists

By Jacob - Jun 18, 2025, 02:21 PM ET

Fed Holds Rates Steady as Inflation Persists and Trump’s Economic Agenda Clouds Outlook

The Federal Reserve has opted to keep its benchmark interest rate unchanged, maintaining the target range at 4.25% to 4.5%, reflecting a cautious stance amid persistent inflationary pressures and growing economic uncertainty linked to President Donald Trump’s proposed tariff agenda and public criticism of the central bank.

Federal Reserve Chair Jerome Powell emphasized the need for more consistent data showing a sustainable decline in inflation before any rate cuts are considered. “We’ll need to see more good inflation data to bolster our confidence that inflation is moving sustainably toward 2%,” Powell said during a press briefing, underscoring the Fed’s continued commitment to its inflation target.

Though inflation has moderated from the multi-decade highs seen in 2022, recent data suggest that progress has stalled. Powell acknowledged that inflation readings in the first quarter of 2025 “were higher than expected,” prompting the Fed to pause any plans to ease monetary policy. Areas such as housing, auto insurance, and various service industries continue to show strong price growth, complicating efforts to bring overall inflation down.

Despite the high rate environment, Powell maintained that the broader U.S. economy remains on solid footing. The Fed’s updated projections show moderate growth continuing and a labor market that, while cooling somewhat, remains historically strong. However, Powell made it clear that the central bank is not yet confident that inflation is on a sustainable downward trajectory. As a result, rate cuts, which markets had anticipated in early 2025, are likely to be delayed.

Tariffs Loom as a Fresh Inflation Risk

Compounding the Fed’s challenge is the potential for new inflationary shocks stemming from President Trump’s trade agenda. Trump has floated sweeping new tariffs as part of his 2025 economic plan, including a 10% across-the-board tax on imported goods and even steeper levies on imports from China. These proposals have raised red flags among economists and Fed observers, who warn that such measures could reignite inflation at a time when the Fed is trying to contain it.

According to reporting by the Associated Press, “Trump’s proposed tariffs would raise the prices of many consumer goods and could lead the Fed to keep interest rates higher for longer.” Diane Swonk, chief economist at KPMG, said new tariffs “would add to inflation,” warning they could complicate the Fed’s already difficult task.

Although Powell has avoided direct comment on the tariff proposals, he noted during his press conference that the Fed always considers how fiscal and trade policy changes might impact its economic outlook. “We are always focused on the implications of fiscal and other policies for the outlook for the economy,” he said.

Markets have taken note. Investors are increasingly pricing in the risk that Trump’s trade policies could delay or derail expected rate cuts. The prospect of higher consumer prices due to tariffs could not only prolong inflation but also pressure the Fed to remain restrictive well into 2025 and possibly beyond. The resulting uncertainty has made financial markets more volatile, with economists warning of a growing disconnect between political rhetoric and monetary policy needs.

Trump Criticizes Fed, Renewing Pressure on Central Bank Independence

President Trump has not remained silent amid the Fed’s hawkish tone. He has sharply criticized the central bank’s decision to maintain high interest rates, claiming that the Fed is stifling economic growth and acting with political bias. Trump has repeatedly suggested that the Fed’s actions are aimed at undermining his administration’s economic credibility ahead of the 2026 midterms.

This is not the first time Trump has clashed with the central bank. During his first term, Trump publicly criticized Powell on numerous occasions, calling for lower rates and even threatening to remove him from office. His renewed attacks in 2025 have revived concerns about the independence of the Federal Reserve—a foundational principle designed to insulate monetary policy from political influence.

In his most recent press conference, Powell declined to respond directly to Trump’s accusations. However, he strongly reaffirmed the Fed’s commitment to its institutional mandate. “We’re always going to do what we think is the right thing based on the data and the outlook,” he said, avoiding partisan entanglements but clearly signaling the Fed’s intention to remain data-driven.

PBS NewsHour reported that Powell used the briefing to “reinforce the central bank’s commitment to its inflation-fighting strategy despite political criticism.” Analysts say his calm and deliberate tone was designed to reassure markets and emphasize the Fed’s credibility.

Market Confidence Tested Amid Political Interference Fears

As political tensions escalate, financial markets are showing signs of unease. Investors, analysts, and business leaders alike are concerned that heightened political pressure could influence Fed decision-making or undermine public trust in its policy choices. The central bank’s credibility is a critical asset—one that enables it to anchor inflation expectations and stabilize markets during times of uncertainty.

The convergence of high interest rates, a volatile inflation outlook, and the looming possibility of inflationary trade policies has created a complex environment for the Fed. It is one in which even carefully calibrated policy actions can be overshadowed by political messaging. Economists caution that a perception of political interference—even if not realized—could disrupt financial stability.

For now, the Fed remains on a narrow path: inflation remains above target, but the cost of keeping rates elevated is mounting for households and businesses. Consumer borrowing costs for mortgages, credit cards, and auto loans remain high, and many economists fear that continued rate restraint could eventually lead to a growth slowdown or even recession.

Still, Powell and his colleagues have made clear that their priority is price stability. Rate cuts remain possible later in 2025, but only if inflation data supports them. Until then, the central bank will hold firm, navigating both economic risks and political crosscurrents in a high-stakes monetary balancing act.