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Fed Keeps Rates Steady, Warns Of Rising 'Uncertainty About The Economic Outlook'
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Fed Keeps Rates Steady, Warns Of Rising 'Uncertainty About The Economic Outlook'
May 26, 2025 3:31 AM

The Federal Reserve kept its fed funds rate steady at 4.25%-4.50% on Wednesday, a widely expected move that marks the third consecutive pause in interest-rate policy.

"Uncertainty about the economic outlook has increased further," the Fed noted in its post-meeting statement.

The May meeting was the first since President Donald Trump's early April announcement of new trade tariffs.

The Federal Reserve noted that recent indicators point to continued solid growth in economic activity, while hinting that volatility in net exports has distorted the data, a reference to the negative GDP reading in the first quarter.

Yet, the Committee emphasized that "risks of higher unemployment and higher inflation have risen," introducing this new language into the May policy statement.

The Fed reiterated its data-dependent stance, emphasizing that future policy actions will be assessed "meeting by meeting," based on economic data, the evolving outlook, and balance of risks. This measured approach suggests that policymakers remain flexible in their response to shifting economic conditions.

Attention now turns to Fed Chair Jerome Powell, who is scheduled to hold his presser at 2:30 p.m. ET. Powell is expected to field questions on the implications of the Trump tariffs, recession risks, inflation trajectory, and the growing political pressure from Trump, who has publicly called for lower interest rates.

Read also: All Eyes On Powell: What Betting Markets Expect Him To Say Wednesday

Leading into the decision, futures markets were pricing in a 28% probability of a 25-basis-point rate cut by the June meeting, rising to 73% by July. Traders currently anticipate approximately 65 basis points of easing by the end of 2025, equivalent to nearly three standard rate cuts.

Minutes prior to the Fed statement, speaking at the swearing-in ceremony for the new U.S. ambassador to China, President Trump said he has no intention of rolling back the 145% tariffs on Chinese goods and is not seeking a broad range of tariff exemptions.

Market reactions

Stocks remained broadly unchanged minutes after the Federal Open Market Committee statement.

The S&P 500 index – as tracked by the SPDR S&P 500 ETF ( SPY ) – was trading at 5,608 points, flat on the day.

The U.S. dollar index – followed by the  Invesco DB USD Index Bullish Fund ETF – fell slightly.

Treasury yields trended lower, with yields on the 10-year Treasury note falling from 4.29% to 4.26%.

Read Next:

Will Powell Defy Trump Again? Here’s What The Fed Chair Might Say On Wednesday

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