On the early morning of May 8, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve (Fed) decided to maintain the target interest rate in the range of 4.25% – 4.5%, unchanged since December 2024. This decision was unanimously approved by all FOMC members, reflecting the Fed’s cautious approach amid ongoing economic uncertainties, particularly those stemming from the tariff policies of the Trump administration.
The FOMC’s post-meeting statement emphasized that the U.S. economy “continued to expand at a solid pace,” with the labor market “generally well-balanced” and the unemployment rate holding steady at 4.2%. However, the Fed acknowledged that “uncertainty about the economic outlook has increased,” with heightened risks to both inflation control and employment levels. Notably, the committee noted concerns about the impact of global trade policies, particularly the tariffs set to be imposed from April 2025, which may contribute to both higher unemployment and inflation.
Fed Chairman Jerome Powell, during a subsequent press conference, stated that the central bank is “well-positioned” to respond to any economic shifts. He acknowledged that sustained tariffs could lead to higher inflation, slower growth, and increased unemployment. Powell also emphasized the importance of patience and reliance on economic data when making decisions.
Powell addressed mixed economic signals: GDP fell by 0.3% in the first quarter of 2025 due to slowing consumption and rising imports before tariffs took effect. Despite this, April’s job report showed 177,000 nonfarm payrolls added, affirming that the labor market remains solid. Inflation-wise, the core PCE index reached 2.3%, while the core PCE price index stood at 2.6%, close to the Fed’s 2% target. However, the tariff policies of the Trump administration are expected to drive up commodity prices, complicating inflation control.
When asked about the continued pressure from President Trump to cut interest rates, Powell reiterated that the Fed would act based on economic data and not political influence. “We use our tools to promote maximum employment and price stability for the benefit of the American people,” Powell stressed, dismissing any speculation of intervention from the White House.
Despite expectations, the Fed’s decision to keep interest rates steady led to notable volatility in financial and commodity markets. The U.S. stock market rebounded slightly on May 7 (U.S. time), with the Dow Jones Industrial Average rising 285 points (0.7%), and both the S&P 500 and Nasdaq indices increasing by 0.4% and 0.3%, respectively. This uptick reflected investor sentiment reassured by Powell’s “wait and see” approach, coupled with hopes for upcoming U.S.-China trade talks in Switzerland.
On the other hand, gold prices faced downward pressure, falling 1.1% to $3,390 per ounce by the close of trading on May 7, due to a stronger U.S. dollar (up 0.2% against major currencies) and optimism surrounding U.S.-China trade relations. However, at 9:40 a.m. on May 8, gold prices surged to $3,410 per ounce following the Fed’s decision.
Looking ahead, investors expect the Fed to maintain interest rates until at least June 2025, with a 30% chance of a rate cut by then, according to CME Group’s FedWatch tool. The market anticipates three rate cuts in 2025, although this prediction may change depending on developments in the U.S.-China trade conflict and other trade negotiations.
The trade war, especially the 145% tariffs on Chinese goods and retaliatory tariffs from Beijing, continues to raise concerns about “stagflation” in the U.S., a scenario the Fed faced in the early 1980s. The Fed’s decision to hold rates steady underscores its caution amid economic uncertainties driven by tariff policies. Despite the market volatility, Powell’s “wait and see” approach reflects the Fed’s confidence in its ability to respond to economic shifts. The future of U.S. monetary policy will hinge on trade negotiations and inflation control, with the U.S. economy maintaining relative stability for now.
