US Fed leaves interest rates unchanged amid economic uncertainty

The United States Federal Reserve has left its benchmark rate unchanged despite mounting pressure from President Donald Trump to cut rates.

On Wednesday, the Fed said it will leave its short-term rate steady at 4.25 percent to 4.5 percent.

The central bank’s decision was largely in line with expectations, and it has not cut interest rates since December.

The decision comes as policymakers weigh signs of a weakening economy. US retail sales numbers fell more than expected in its report from the US Department of Commerce yesterday. Last week’s jobless claims report from the US Department of Labour came in at its highest in eight months at 248,000.

However, the last jobs report showed the unemployment rate was steady at 4.2 percent, indicating the labour market, while slowing, remains fairly stable.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has diminished but remains elevated,” the central bank said in a statement.

Powell pointed out the labour market was not a source of major inflationary pressures, and that the central bank was holding rates steady to respond to uncertainty driven by Trump’s economic and immigration policies as well as consumer prices, a key inflation gauge for the Federal Reserve. The most recent report showed a 2.1 percent increase for the month of April.

“We’ve seen goods inflation moving up a bit,” Powell said. “We do expect to see more of that during the course of the summer. It takes time for tariffs to work their way through the chain of distribution to the end consumer. We are beginning to see effects and we do expect to see more of them in the coming months,” he added.

Economists agree.