Fed leaves policy rate unchanged
The Fed left policy rate unchanged but hinted at the possibility of further rate hikes due to continued inflation. Contrary to market expectations, Fed Chairman Jerome Powell emphasized that a rate cut is unlikely until the second half of the year. He also emphasized that the Fed is committed to achieving its 2% inflation target.
Tariff Concerns
Powell acknowledged the economic risks posed by escalating trade tensions and tariffs. He noted the potential negative impact on business investment and overall economic growth. The ongoing trade disputes create uncertainty, making it harder for the Fed to predict the economic trajectory.
Inflation Remains Key Focus
Despite some signs of cooling inflation, Powell reiterated the Fed’s primary focus remains bringing inflation down to the target level. He indicated the central bank is prepared to take further action if necessary to control inflation. The Fed’s data-dependent approach means future decisions will hinge on incoming economic data.
Market Reaction
Markets reacted negatively to Powell’s comments, with stocks declining and bond yields rising. Investors had anticipated a more dovish stance from the Fed, including potential rate cuts later this year. The chairman’s hawkish tone surprised markets and fueled concerns about future economic growth prospects.
