New Delhi– The U.S. Federal Reserve’s decision to keep the federal funds rate steady at 4.25%–4.5% has been welcomed by economists and market experts, who view the move as prudent amid ongoing geopolitical tensions, trade uncertainties, and the Biden administration’s recent 90-day tariff pause.
With the U.S. economy continuing to expand and unemployment remaining low, the Federal Open Market Committee (FOMC) opted to maintain its current policy stance while signaling a cautious outlook.
“While uncertainty surrounding the economic outlook has lessened, it remains elevated,” said Hemant Jain, President of PHDCCI. “The Fed’s position is commendable, as it reinforces the twin goals of supporting maximum employment and bringing inflation back to its 2 percent target.”
Compared to his remarks in May, Fed Chair Jerome Powell appeared slightly more concerned about the inflationary impact of tariffs. “Ultimately, the cost of the tariff has to be paid. And some of it will fall on the end consumer,” he noted. Still, Powell indicated there are currently no signs of significant economic weakness, and the Fed remains “well positioned” to monitor the effects of tariffs before taking further action.
According to Emkay Global Financial Services, the Federal Reserve is likely to hold off on cutting rates until it sees substantial signs of deterioration in the labor market. The Fed is expected to look past short-term price spikes caused by tariffs. Analysts predict that the next rate cut is most likely to come in September, with current market pricing reflecting a 63 percent probability for a September cut and only a 10 percent chance for July.
The Fed also revised its 2025 economic projections, lowering GDP growth estimates to 1.4 percent (down 30 basis points) and raising its core Consumer Price Index (CPI) forecast to 3.1 percent (up 30 basis points). These adjustments underscore a challenging macroeconomic environment marked by persistent inflationary pressures and slowing growth.
“While U.S. equity indices held relatively steady, short-term Treasury yields experienced notable volatility,” said Vaqarjaved Khan of Angel One. “A potential 50 basis-point rate cut in 2025 could boost global liquidity and benefit Indian markets, though geopolitical tensions in the Middle East and ongoing trade uncertainties may limit the upside.”
Looking ahead, analysts expect the Federal Reserve to continue evaluating incoming economic data and remain prepared to adjust monetary policy if risks to the outlook materialize. (Source: IANS)
