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FED HOLDS RATES STEADY AS IT NOTES RISING UNCERTAINTY AND STAGFLATION RISK
- The Federal Reserve held its key interest rate unchanged in a range between 4.25%-4.5%, where it has been since December.
- The post-meeting statement noted the recent market volatility and how that is factoring into the central bank’s policy decisions.
- “Uncertainty about the economic outlook has increased further,” the statement said.
WASHINGTON — The Federal Reserve on Wednesday held its key interest rate unchanged as it waits for the Trump administration’s trade policy to take shape and sees its impact on a sputtering economy.
In a move that carried little suspense given the wave of uncertainty sweeping the political and economic landscape, the Federal Open Market Committee (FOMC) held its benchmark overnight borrowing rate in a range between 4.25%-4.5%, where it has been since December.
The post-meeting statement noted the volatility and how that is factoring into policy decisions.
“Uncertainty about the economic outlook has increased further.“
“The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
While the statement did not specifically address the tariffs, Chair Jerome Powell addressed the issue at his post-meeting news conference.
Stocks briefly ceded some gains after the rate announcement but mostly recovered, with the Dow Jones Industrial Average up nearly 300 points despite some worries over the Fed’s characterization of the economic risks.
“The May FOMC statement in effect warns that a large trade shock is still set to hit the economy in spite of efforts by the Trump administration to deescalate…”
— Krishna Guha, Head of Global Policy and Central Bank Strategy at Evercore ISI
“…with the Fed seeing the risks ahead as two-sided and not providing any early dovish lean in favor of a June rate cut.”
“The net implications for risk assets are negative.”
A possible stagflationary scenario
Finding the balance between the two elements of the Fed’s so-called dual mandate of full employment and stable prices has become more difficult amid President Donald Trump’s tariff push.
In noting that tariffs threaten to aggravate inflation as well as slow economic growth, the statement raises the possibility of a stagflationary scenario largely absent from the U.S. since the early 1980s.
Policymakers have largely agreed that the central bank is in a good position, with the economy generally holding up, to be patient as it calibrates monetary policy.
Powell emphasized this during the press conference:
“The economy itself is still in solid shape.”
Trade Talks in Focus
The Fed’s deliberations come as the White House is locked in negotiations with top U.S. trading partners during a 90-day negotiating period that began in early April. Trump slapped 10% across-the-board tariffs on U.S. imports and threatened other “reciprocal” duties pending ongoing talks.
As near-daily headlines gauge the trade war, the economy has been flashing conflicting signals on growth, inflation, and consumer and business sentiment.
- Gross domestic product (GDP) fell 0.3% in the first quarter
- Slower consumer and government spending and a surge in imports ahead of tariffs
- Most economists expect a return to positive growth in Q2
The FOMC noted that “swings in net exports have affected the data,” while maintaining its view that the economy “has continued to expand at a solid pace.”
Indeed, job growth has held up despite Trump’s efforts to pare down the federal workforce:
- Nonfarm payrolls increased by 177,000 in April
- Unemployment rate held at 4.2%
- Inflation is approaching the Fed’s 2% target
However, tariffs are expected to lead to at least a one-time rise in prices. Trump has urged the Fed to cut rates as inflation has eased. The Fed’s preferred inflation gauge showed:
- Headline inflation at 2.3%
- Core inflation (excluding food and energy) at 2.6%
As with all aspects of the economy, it all depends on what happens with tariffs.
Market Reactions & Outlook
Recent signs of progress in negotiations and some softening from the administration helped reverse a major stock market sell-off after the April 2 “liberation day” announcement from Trump.
However, business surveys continue to show high anxiety—most managers report concerns about supplies and pricing from the tariffs.
Market pricing regarding Fed action has been volatile:
- Heading into the meeting:
- Virtually no chance of a rate cut this week
- <30% probability of a June move
- Next cut expected in July
- Three cuts priced in for the year
The committee’s decision to hold the benchmark rate steady was unanimous.
The federal funds rate, used by banks for overnight lending, also affects mortgages, auto loans, and credit cards.
@ Newshounds News™
Source: CNBC
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US TREASURY SECRETARY EXPRESSES SUPPORT FOR CRYPTO BILLS AT HEARING
Scott Bessent suggested support for the stablecoin and market structure bills being considered in Congress in response to a question about China.
Speaking at a hearing, US Treasury Secretary Scott Bessent suggested support for two crypto-related bills moving through Congress.
Bessent addressed lawmakers at a May 7 hearing of the House Financial Services Committee, saying that the United States should be the:
“premier destination for digital assets”
in response to a question about American dominance over China in crypto-related innovation. The Treasury Secretary added that:
“good market structure” and “stablecoin legislation” could help ensure this outcome.
Bessent’s remarks echoed those of other Republican lawmakers and President Donald Trump, who initially claimed he wanted to make the US the:
“crypto capital of the world”
during his 2024 campaign. The Treasury Secretary was likely referring to:
- the draft of a digital asset market structure bill released by House Republicans on May 6
- the GENIUS bill to regulate stablecoins, expected to be taken up for a Senate vote on May 8
The Treasury Secretary, a Trump nominee, has supported the president on key crypto policy actions, including:
- an executive order to establish a sovereign wealth fund
- participation in a working group exploring federal stablecoin regulations and a national crypto stockpile
He also stated during a confirmation hearing that he would oppose the creation of a US central bank digital currency while in office.
Democrats Push Back on Crypto Bills Amid Memecoin Dinner Controversy
Even before Trump announced plans to hold an exclusive dinner and VIP tour for top memecoin holders, he faced scrutiny over alleged conflicts of interest tied to his crypto ventures.
The dinner announcement seemed to galvanize Democrats against any crypto-related legislation.
Representative Maxine Waters, ranking member of the House Financial Services Committee, led a walkout of the May 6 hearing on the Republican-drafted market structure bill, citing the need to explore:
“Trump’s crypto corruption”
Additionally, nine Senate Democrats stated they will not support the GENIUS stablecoin bill in its current form, demanding:
- stronger Anti-Money Laundering protections
- tougher oversight on foreign issuers
- improved national security safeguards
It remains unclear whether Republicans, who control both chambers of Congress, will have enough votes to pass either bill.
@ Newshounds News™
Source: CoinTelegraph
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