Federal Reserve Cites Economic Uncertainty As Major Reason to Delay Cutting Interest Rates

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Federal Reserve officials are holding off on interest rate cuts as they respond to persistent economic uncertainty. At separate events this week, New York Fed President John Williams and Atlanta Fed President Raphael Bostic made it clear that the central bank will need more time and data before adjusting monetary policy. Their comments suggest rates will likely remain steady until at least September.

Investors, taking their cue from the Fed, now expect no changes at the next meeting in June. Market-based probabilities show less than a 10% chance of a cut, down from stronger expectations earlier this year. The current forecast suggests two quarter-point reductions before the end of 2025, a notable shift from projections that called for four just one month ago.

Williams said that neither June nor July would offer enough clarity to justify a rate adjustment. Speaking at a conference in New York, he described the current outlook as too murky to support immediate action. “It’s going to be a process of collecting data, getting a better picture, and watching things as they develop,” he said.

Bostic echoed that view in multiple interviews. He noted that the effects of trade negotiations, especially ongoing talks with China, will take several more months to become clear. “If this pushes deeper into the summer, we won’t know the true effects for a while,” he said. He also mentioned that a faster agreement could change the outlook, possibly prompting earlier action.

Inflation Progress, But New Risks Emerge

Recent inflation data has shown modest improvement. The Consumer Price Index slowed to 2.3% in April, just above the Fed’s 2% goal. However, Bostic and other policymakers are focused not only on current figures but on expectations. If the public starts to believe inflation will rise again, it could change consumer behavior and force the Fed to take a harder stance later in the year.

Vice Chair Philip Jefferson also called for patience. At a financial conference in Atlanta, he described the Fed’s current position as moderately restrictive and appropriate. “Given the level of uncertainty that we’re facing right now, I believe that it is appropriate that we wait and see how the policies evolve over time and their impact,” he said.

Officials agree that tariffs are contributing to economic uncertainty. While the Trump administration reached a temporary deal with China to reduce levies, those negotiations remain in flux. Other trade partners are halfway through a 90-day pause in reciprocal tariffs. If those deals collapse, inflation could spike again.

Credit Ratings and Consumer Behavior Add to Caution

Moody’s recent downgrade of the U.S. credit rating has added pressure. The agency cited the country’s rising debt and lack of fiscal discipline. The downgrade weakened the U.S. dollar and raised new concerns about the government’s ability to manage its long-term obligations.

Meanwhile, Fed officials are watching consumer behavior closely. While employment remains stable, signs of stress are emerging in credit card delinquencies and household spending. Williams noted that many households and businesses have put major purchases on hold due to the uncertainty around inflation and trade.

Minneapolis Fed President Neel Kashkari pointed out that the central bank has made meaningful progress on lowering inflation. Still, he described the trade environment as a “curve ball” that could shift the direction of policy depending on how the data evolves.

With all of this in play, the Fed is choosing to wait. Officials believe the risk of moving too early outweighs the benefit of immediate cuts. Investors may want faster action, but the data does not support a confident policy change—yet.

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