The US Federal Reserve has once again held the benchmark interest rate steady at 4.25%–4.50%, marking the fourth straight pause since early 2024. Despite calls for rate cuts, Fed Chair Jerome Powell reiterated that more time is needed to bring inflation under control. The June 2025 decision comes amid concerns over economic slowdown, rising tariffs, and the looming specter of stagflation.
🔍 Why the US Fed Interest Rate Stays at 4.50%
1. Inflation Remains Sticky
While inflation has cooled from 2022 highs, it still hovers around 3%, above the Fed’s 2% target. Powell said inflation is “still too high,” especially with new tariffs expected to drive prices higher this summer.
2. Growth Is Slowing
GDP growth forecasts for 2025 have been revised downward to just 1.4%, showing the economy is cooling. Powell noted “some signs of stagnation,” aligning with concerns of a stagflation scenario—slow growth, high inflation, and rising joblessness.
3. Labor Market Still Strong
Despite the slowdown, unemployment remains relatively low at around 4.2%, giving the Fed more room to stay patient with rate changes.
4. Tariff Pressures to Raise Costs
Powell cautioned that the recent wave of tariffs on Chinese and foreign goods will push prices higher: “Somebody has to pay for the tariffs—it’ll be consumers,” he said.
5. No Cut Yet, But Two Likely in 2025
The Fed’s dot plot suggests two 25-bps rate cuts are still expected later this year, with the first likely in September. However, fewer cuts are forecast for 2026 due to persistent inflation risks.
6. Political Heat Intensifies
Former President Donald Trump called Powell “stupid” for keeping rates high and has hinted at replacing him if elected. Powell, however, firmly emphasized the Fed’s independence and data-driven approach.
📉 Market Impact
- Stock Reaction: US and Indian markets remained cautious.
- IT Sector Hit: Indian IT stocks dropped up to 3.5%, as high US rates dampen outsourcing and tech demand.
✅ Final Take
The US Fed’s decision to hold interest rates at 4.50% signals caution in a fragile economic environment. With inflation still above target, and the risk of stagflation emerging, the central bank is treading carefully. Markets should brace for tighter conditions a bit longer—with possible relief in Q3 2025 if inflation data improves.
