Fed opts to leave key rate unchanged - Orange County Register

Fed opts to leave key rate unchanged

Chair Jerome Powell says the central bank is still navigating an uncertain economy

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Fed Chair Jerome Powell says unemployment is still low and wages continue to rise in explaining Federal Reserve’s actions. Bloomberg

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By Colby Smith

The New York Times

The Federal Reserve kept interest rates unchanged again in June, keeping them paused at a range of 4.25% to 4.5%, where they have been since January.

The Fed’s decision, along with new economic projections and a news conference with Jerome Powell, the chair, shed additional light on the path ahead for borrowing costs.

U.S. stocks drifted to a mixed finish on the news. The S&P 500 finished nearly unchanged and edged down by less than 0.1% after flipping between modest gains and losses several times. The Dow Jones Industrial Average dipped 44 points, or 0.1%, and the Nasdaq composite rose 0.1%.

Here are key takeaways:

No urgency to cut rates

The Fed sees little urgency to lower interest rates anytime soon. Powell repeatedly said that the central bank was “well positioned” to navigate through what is still a very uncertain economic environment given President Donald Trump’s tariffs and other policies that could weigh on economic growth.

He pointed to the fact that unemployment is still low, wages are still moving up and growth overall is still “decent.”

the path ahead

The decision to hold interest rates steady was unanimously supported by all voting members of the Fed. Looking ahead, finding a consensus among all the policymakers may get more challenging.

While most officials stuck with earlier forecasts that the Fed will be able to cut borrowing costs by half a percentage point this year, or two quarter-point moves, nine of the 19 policymakers forecast the Fed doing less.

Seven penciled in no more reductions this year, while two predicted just one quarter-point move.

Powell sought to play down any type of dissension ahead. “No one holds these rate paths with a lot of conviction,” he said.

Stagflation still a risk

While Powell did not use this word directly during the news conference, the outlook sketched out by officials in their new projections much more closely resembles a stagflationary shock than what they penciled in just three months ago.

That entails inflation accelerating while unemployment rises and growth turns more sluggish. Such a situation would put the Fed’s dual mandate of maximum employment and stable prices in tension.

Powell warned that the Fed could find itself in a situation in which its goals of 2% inflation and a healthy labor market are at odds with each other. He said officials would consider the distance from those goals and the time needed to get back to those desired levels.