The Federal Reserve didn’t cave to a rate cut, despite cooling inflation and increasing pressure from President Trump.
The Federal Open Market Committee decided to hold rates steady at a target range between 4.25% and 4.5%, maintaining its holding pattern for a fifth-straight meeting. The last rate cut was back in December 2024.
At his press conference, Fed Chair Jerome Powell said that the central bank is “well-positioned to wait” before cutting rates again. “Uncertainty about the economic outlook has diminished but remains elevated,” he explained. As for when those rate cuts could happen, “It's very, very hard to say,” he said, adding, “We feel like we're going to learn a great deal more over the summer on tariffs.”
The Fed’s newest inflation worry
The Federal Reserve’s decision to stay the course was hardly a surprise, since the job market looks pretty solid and fears of tariffs fanning inflation haven’t come to pass (at least, not yet). Still, just when we might have thought the clouds of economic uncertainty could be clearing, a conflict between Israel and Iran has reared its head—and it’s one that could jack up oil prices and send inflation soaring yet again.
“The nearly 25% fall in energy prices since last July has been a disinflationary tailwind and has contributed to the improvement we have seen in overall inflation in the US,” said Chief Investment Officer at Northern Trust Wealth Management Katie Nixon. “With higher oil prices, however, the risk is that this tailwind becomes a headwind. And with the additional threat of higher tariffs also potentially driving inflation higher—at least near term—this is an unwelcome change, threatening to further complicate the Federal Reserve’s monetary policy path.”
Meanwhile back at home, “too late Powell” has faced a tirade of demands from Trump to cut rates, with the president even threatening that he "may have to force something." But so far at least, Powell hasn’t buckled.
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That’s actually not too surprising if you think about it. History shows that stubborn behavior is typical of Fed Chairs in their final year as they try to leave behind a strong legacy of keeping inflation in check. Former Fed leader Alan Greenspan hiked rates just 100 basis points in 2006, Ben Bernanke kept rates steady in 2014, and Janet Yellen upped rates by a mere 75 basis points in 2018.
What’s next for the Fed
The Federal Reserve’s next meeting is July 29–30, but analysts don’t expect a rate cut then, either. Most anticipate the next cut will occur following the September 16–17 meeting.
The Fed’s latest dot plot—a quarterly chart showing each Fed official's prediction for the direction of benchmark borrowing rates—suggests that two rate cuts are still on the table for this year. But that consensus is weakening: Two of the 19 officials now anticipate just one cut, and seven foresee no cuts at all, compared to just four in March.
As for what happens after Powell leaves his post next year, well, who the hell knows.
“As it’s become clear that Fed Chair Powell will serve out his term until May 2026, traders have been taking the view that fewer cuts are likely before then,” said Christopher Vecchio, head of global macro at Tastylive. “However, traders have been ramping up bets that the second half of 2026, with a new Trump-appointed Fed Chair, will see a more aggressive cutting cycle.”
Until then, the Fed’s “wait and see” approach continues.—JD