Federal Reserve Holds Rate at 4.25–4.50% as Tariff-Driven Stagflation Risk Mounts

The Federal Open Market Committee voted unanimously 12-0 to leave the federal funds rate unchanged at its target range of 4.25% to 4.50% at its May 7 meeting, as Chair Jerome Powell warned that the United States' recent tariff measures risk driving both unemployment and inflation higher simultaneously. The hold was in line with market expectations.

Powell told reporters that the risks of both higher unemployment and elevated inflation had risen.

STATEMENT AND OUTLOOK

The FOMC's statement noted that risks to both sides of its mandate had increased.

Powell noted that the Fed's current posture was to wait and observe how the tariff measures affect economic conditions before moving. Powell said the Committee did not need to be in a hurry to adjust policy. The Fed's preferred inflation gauge, the personal consumption expenditures price index, remained above the 2% target heading into the May meeting.

The May 7 decision to hold leaves the federal funds rate where it has stood since December 2024, after the FOMC had cut rates by a cumulative 100 basis points from their peak.