Central Bank halts further interest rate reductions, expressing concerns over potential inflation and joblessness issues.
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Hey there! Let's dive into the latest financial news - the US Federal Reserve threw a spanner in the works with another rate hold, all while pointing a finger at President Trump's tariff rollout.
The central bank announced on Wednesday that they'd be keeping their key lending rate parked at 4.25% to 4.50%. Following this decision, Wall Street stocks soared, with Asian and European markets also experiencing gains ahead of the tariff discussions between China and the States. London's market saw a boost thanks to rumors of a "major trade deal" with the UK, as touted by Trump.
Pictured: EPA-EFE
Regarding economic numbers, the hard data reveals a slowdown, while unemployment rates have oscillated near record-breaking lows, and inflation has been knocking on the Fed's 2% door.
However, survey data tells a different story. Consumer confidence has taken a dive, and expectations for long-term inflation are on the rise, bucking the trend of the market's inflation expectations, which have remained relatively stable.
Fed Chair Jerome Powell commented post-meeting, expressing his concerns about Trump's tariff policies' uncertain future. According to Powell, these policies could potentially jack up inflation, stagnate economic growth, and increase unemployment. While inflationary effects might be temporary, Powell added that they could also persist.
The Fed's latest statement acknowledged increased uncertainty about the economic outlook and rising chances of elevated unemployment and inflation.
Powell also fended off criticism from senior government officials, including Trump, who's been vocal about wanting lower rates to boost growth. Despite the flak, Powell stated that only economic data, outlook, balance of risks would influence the Fed's decisions.
Analysts predict the Fed won't be making moves until July at the earliest. Tai Hui, chief Asia market strategist at JPMorgan Asset Management, remarked that recent job data point to strong growth, enabling the Fed to maintain its current position. With only one more set of job data expected before the June meetings, analysts reckon a rate cut in June is unlikely.
The Fed is treading carefully, ready to adjust rates as the situation unfolds in response to the tariff policies. Interestingly, if the tariffs persist, we might see a situation akin to stagflation, where both inflation and unemployment rise simultaneously, making it challenging for the Fed to prioritize their policy actions[1]. Keep an eye on these developments!
[1] - Insight: The potential economic impacts of Donald Trump's tariff rollout on inflation, unemployment, and economic growth are significant and pose challenges for the Fed's dual mandate. Risks involve inflation rises due to increased costs on imported goods, unemployment concerns due to reduced economic activity and businesses' ability to compete globally, slower economic growth due to trade disruptions, and the possibility of stagflation—where both inflation and unemployment rise simultaneously. The Fed is adopting a cautious approach, maintaining flexibility to adjust interest rates based on how these factors evolve in response to the tariff policies.
- The Federal Reserve's latest statement indicated a heightened likelihood of elevated unemployment and inflation, as the ongoing tariff policies pose significant risks to the economic outlook.
- According to Fed Chair Jerome Powell, the tariff policies could potentially lead to a rise in inflation, stagnating economic growth, and increasing unemployment, although these effects might be temporary or persistent.
- The Fed's dual mandate - maintaining stable prices and maximum employment - is challenged by Trump's tariff rollout, as it increases the cost of imported goods, undermines economic activity, and threatens businesses' ability to compete globally.
- Analysts predict that the Fed will hold off on making interest rate adjustments until July at the earliest, as they carefully assess the impact of the tariffs on inflation, unemployment, and economic growth, potentially leading to a stagflationary scenario.
