Fed Chair Jay Powell was absolutely clear about the Fed’s intention to hold the fed funds rate steady. But the market, ever optimistic, ignored Powell and is having a minor hissy fit. This has happened the same way about 5 times before. If I was a betting gal I would lay money on it. (Options, anyone?)
Fed Keeps Rates Steady as Tariff Uncertainty Roils Outlook
Officials are puzzling over whether to focus on the risks of higher prices or weaker hiring
By Nick Timiraos, The Wall Street Journal, May 7, 2025
he Federal Reserve warned that the economy faced growing risks of higher unemployment and higher inflation when officials unanimously agreed to hold interest rates steady on Wednesday.
“Uncertainty about the economic outlook has increased further,” officials said in their post-meeting statement, the first since President Trump imposed sudden tariff increases last month. “The committee … judges that the risks of higher unemployment and higher inflation have risen.”…
Tariff rates on China have been raised to 145%, a level that Trump and his advisers concede can’t be sustained because they amount to a trade embargo. Cargo volumes from China are down about 35% in recent weeks, and many small businesses are in limbo. U.S. and Chinese officials are set to meet later this week in Switzerland… [end quote]
Here’s the link to the Fed’s announcement.
Here’s the history of the fed funds rate.
Here’s the market’s inflation expectation.
Here’s the unemployment rate.
There are no clear signs of recession. The market’s expectation for 10-year inflation is 2.3%, above the Fed’s goal.
The 10-year Treasury real yield is lower than the pre-crisis real yield.
There is no reason for the Fed to cut the fed funds rate. There is a risk of higher inflation which they are not willing to take.
Wendy