Interest Rates Remain at Current Level – Federal Reserve

The Federal Reserve released its FOMC statement today, announcing that federal interest rates will remain at 4.25-4.5%. Fed Chair Jerome Powell addressed the media today to discuss the economic outlook of the United States.

“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.”

Inflation and Tariffs

Latest reports on inflation have a 12-month unadjusted rate of 2.4%, which is slightly above the Fed’s 2% goal. Economic data is strong for the United States, but there remains caution of increased inflation, mainly due to tariffs.

While tariffs were not discussed in the official statement, Powell did follow up with the discussion after questions from reporters. When asked about the extent of tariffs and the timeline of their impacts, Powelled followed up: “We’ve had three months of favorable inflation readings.” He continued, “We’ve had goods inflation moving up just a bit. We do expect to see more of that over the course of the summer. It takes some time for tariffs to work their way through the chain of distribution to the end consumer.”

Employment

Employment has remained strong over the last few months, and in the statement, Powell stated that employment remains at or near maximum employment. Unemployment did “tick up a bit” to 4.2% in May, as the economy continued to add jobs, but the labor market continues to grow.

Employment is the second-largest factor that the Federal Reserve must consider when looking at interest rates. Higher interest rates mean that economic growth is somewhat slowed. This is intentional, as to keep demand lower, thereby keeping prices (inflation) low. However, if demand and prices remain low, then economic activity remains slow. With slower economic activity, we will usually see businesses tightening their employment, leading to slower hiring rates and potentional higher unemployment rates. If unemployment spikes, we will likely see a quick drop in interest rates.

Because the state of the economy is strong, money is being spent within the economy, and unemployment is low, there is little need or motivation for the Federal Reserve to drop interest rates. They can continue to work towards reducing inflation to 2% while economic activity remains strong. Moving the interest rates too quickly, they fear, will bump up economic activity and raise prices. This, coupled with the fear of tariff impacts, will cause the Federal Reserve will continue to be cautious about interest rates.

How Does This Impact You?

The rates that the Federal Reserve sets are officially the rates at which the banks lend money with eachother and the central bank. This does not necessarily mean that interest rates will remain where they are at because of the Fed’s decision. However, banks usually will not lower rates if the Federal Reserve does not, because they want rates to stay competitive to keep interest payments standard across the nation. When the Federal Reserve drops interest rates, banks usually follow suit, and drop their rates at which they loan to consumers and businesses.

Because interest rates remain somewhat elevated, this means that rates will remain elevated for borrowing, particularly in mortgage rates. Higher interest rates are usually a motivator to have consumers spend less, because consumers want to have lower payments.

Taking out large loans with higher interest rates is a decision that you have to make based on your financial well-being. If you are waiting for lower interest rates to make a major buying decision, such as a car or mortgage, then it might be a good decision to wait, build up larger down payments, and make sure you can afford the monthly payment. If you get to a point where you can afford a large down payment and the monthly payment regardless of the interest rates, then you are likely in a good spot to be able to take out the loan.