Fed Keeps Interest Rates the Same for Fourth Time, Despite Economic Worries
People and businesses in the U.S. have seen many changes in government policies recently, but one thing hasn’t changed: the cost of borrowing money.
On Wednesday, the U.S. central bank, known as the Federal Reserve, decided to leave interest rates unchanged. This is the fourth time in a row that the Fed has chosen not to change its key rate, which stays at around 4.3%. That rate has stayed the same since December.
Even though the economy is showing signs of slowing down — with higher inflation, more unemployment, and lower growth — the Fed is sticking with its current plan. Usually, the Fed would lower interest rates if the economy is struggling or raise them if prices are rising too fast.
President Donald Trump has pushed the Fed to lower rates, especially as he raises tariffs on goods from other countries. But the Fed is independent from the White House and does not follow presidential orders. Officials at the Fed worry that the higher prices caused by tariffs could last longer than expected.
Inflation — the rate at which prices rise — hit 2.4% in May. That’s higher than the Fed’s 2% goal. Fed Chair Jerome Powell said prices could rise even more in the coming months as companies pass on the higher costs to shoppers.
“It’s very hard to predict,” Powell said. “That’s why we think it’s best to keep rates where they are.”
He added that the overall economy is still strong and unemployment is still low at 4.2%.
However, the Fed expects slower growth. Officials now predict the economy will grow only 1.4% this year, compared to 2.5% last year. They also expect inflation to rise to 3% and the unemployment rate to go up to 4.5%.
Most Fed officials still think interest rates will fall slightly in 2025 to just below 4%, but they now expect rates to be a bit higher than before in 2026 and 2027.
Earlier on Wednesday, Trump called Powell “stupid” and said he was “too late” to act, repeating past criticisms.
Meanwhile, central banks in Europe and the UK are doing the opposite. The European Central Bank has cut interest rates eight times since last summer. The Bank of England lowered rates recently too, though it may pause this week.
Isaac Stell, an investment manager, said the Fed is likely to wait before making any big moves. “Unless there’s a really strong reason to cut rates, the Fed will probably just stay on the fence,” he said.
The Fed’s interest rate affects what banks charge each other for short-term loans. That also affects how much regular people and businesses pay for things like mortgages, credit cards, and business loans.
At 4.3%, today’s interest rate is still much higher than it was from 2008 to 2022, when the Fed began raising rates to fight inflation. But it is about 1% lower than it was last year.
