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Fed holds interest rates steady amid economic uncertainty

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The Federal Reserve kept US interest rates unchanged on Wednesday, maintaining the target range at 4.25%-4.50% as policymakers assess inflation trends and the impact of President Donald Trump’s economic policies.

The widely expected decision signals a pause in the Fed’s rate-cutting campaign, with officials offering little guidance on future reductions.

George Lagarias, Chief Economist at Forvis Mazars, noted that the pause in rate cuts could set the stage for a broader conflict between the administration’s trade agenda and the Fed’s inflation-fighting mandate.

“The US central bank paused rate cuts in January. The FOMC removed previous comments that inflation was “making progress towards the 2% goal”, suggesting that inflation risks are tilting to the upside. Usually, the markets concentrate on the comments by the Fed Chair, to gauge whether the FOMC will adopt a hawkish or a dovish stance going forward. This time around, however, Jerome Powell’s words might mean less to investors who will be more focused on possible reactions from the Oval Office. 

“The President has good reason to pressure the Fed to lower interest rates. Trade wars mean higher inflation. The new administration seems willing to pay the inflation price to restore some competitiveness through protectionism, as inflation would also reduce the real debt burden. But the Fed’s mandate to fight inflation when unemployment is low would mean maintenance of high rates, and possibly even hikes, which would hinder growth and prevent the US from inflating some of the debt away. The two policies may well collide.”

Meanwhile, the European Central Bank is expected to cut rates today.