The United States Federal Reserve is expected to keep interest rates steady in the 4.25%-4.50% range at the end of the Federal Open Market Committee (FOMC) meeting on Wednesday. While inflation is dropping, with the Fed-preferred PCE price index falling to 2.5% in the latest report, it remains above the 2% target and the many uncertainties surrounded the Trump administration's economic policy threaten to push it higher.
High interest rates continue to weigh on the US economy. Spending is falling and consumer confidence is plunging, with the latest survey showing Americans expect inflation to be at 4.9% within a year. The possibility of recession has been a prominent talking point lately. However, the prospect of soaring prices resulting from an escalating trade war seems to be the overriding argument in favor of cautious monetary policy, at least for the time being. US President Donald Trump announced a new wave of tariffs on April 2, although their exact extent is currently unclear. The Fed commitment to price stability means it must protect the economy from inflationary shocks, possibly at the expense of short-term growth.
The Fed will publish a new set of economic forecasts together with the interest rate decision tomorrow, which is bound to inform its next steps. While analysts still expect it to hold rates in May, the rapidly evolving circumstances might push it to bolder measures.
