Washington: The U.S. Federal Reserve announced on Wednesday that it would keep its benchmark interest rate unchanged, while signaling the potential for two rate cuts by the end of the year. This decision comes as the Fed cautiously evaluates the economic implications of U.S. President Donald Trump's tariff policies, which have introduced significant uncertainties.
According to Yonhap News Agency, the Federal Open Market Committee (FOMC) concluded its two-day meeting by deciding to maintain the rate within the 4.25 to 4.50 percent range. This pause follows a series of reductions, including quarter-percentage-point cuts in both December and November, and a 50-basis-point cut in September. The FOMC's new median economic projection indicates that the federal funds rate is expected to decrease to 3.9 percent by the end of this year, further declining to 3.4 percent next year and 3.1 percent by 2027.
The Fed's projections also include a downward revision of the United States' gross domestic product growth to 1.7 percent this year, a decrease from the 2.1 percent projected in December. Additionally, the latest median projection forecasts that Personal Consumption Expenditures (PCE) inflation may rise to 2.7 percent by year's end, up from the previous forecast of 2.5 percent in December. PCE serves as a measure of household consumer spending on goods and services in the U.S.
Concerns about the impact of Trump's expanding trade policies on inflation have influenced the Fed's decision to maintain the current rate. Fed Chair Jerome Powell indicated that a significant portion of the higher inflation projection is attributed to tariffs. Powell noted that tariffs have been identified as a "driving factor" behind the increase in near-term inflation expectations.
Since assuming office in January, Trump has announced a series of tariffs, including a 25 percent tariff on steel and aluminum imports introduced last week. He has also proposed reciprocal tariffs that would match those imposed by other countries on American goods. The current rate decision results in a gap of up to 1.75 percentage points between the key rates of South Korea and the United States.