On Wednesday, the Federal Reserve will issue a new decision on the level of its reference interest rate, testing a waiting and view approach adopted by the Central Bank in recent months, since it observes the possible effects of the tariff policy of President Donald Trump.
The restriction posture in the Fed has caused acute and repeated criticisms of Trump, who instead wants the Central Bank to reduce interest rates in an effort to overcome the US economy.
The Fed, an independent federal agency, is expected to continue its challenge to Trump.
Investors set the possibilities of a decision to leave rates without changes in 99.9%, according to the CME Fedwatch toolA measure of the feeling of the market.
Since Trump assumed office, inflation has decreased and employment growth has slowed down.
Fresh inflation data last week showed a slight acceleration of price increases, but inflation remains close to its lowest level since 2021. The hiring was slowed but remained resistant in May, since the uncertainty that surrounds at the time, rates out again seemed to reduce the hiring less than some economists feared, a government report showed this month.
The Fed is guided by a double mandate to maintain inflation under control and maximize employment. In theory, a decrease in interest rates could help stimulate economic activity and increase employment, especially while inflation remains low.
Last week, Trump celebrated fresh inflation data, mocking the president of the Fed, Jerome Powell, in a publication on social networks as a “Numbskull” about his apparent lack of will to reduce interest rates. Since Trump assumed the position, Powell has reaffirmed the independence of the Fed.
Powell, in recent months, warned about the possibility that tariffs can cause what economists call “stagflation”, which is when inflation increases and the economy slows down.
The stagflation could put the central bank in a difficult position. If the Fed increases interest rates as a means to protect against inflation induced by the rate in this scenario, run the risk of querying loans and slowering the economy further.
On the other hand, if the Fed reduces rates to stimulate the economy against a potential deceleration, threatens to increase spending and make inflation worse.
In recent weeks, Trump has returned some of his most steep tariffs, relieving the costs imposed on importers. These companies generally transmit a part of the highest tax burden in the form of price increases.
The president of the Federal Reserve, Jerome Powell, delivers comments during the Division of the Conference of the 75th Anniversary of International Finance, June 2, 2025, in Washington, DC
Somodevilla/Getty chip
A commercial agreement between the United States and China cut the Tit-For Tat rates between the two largest economies in the world and caused an increase in the stock market. In a matter of days, Wall Street companies softened their recession forecasts.
The agreement between the United States and China took weeks after the White House stopped a large strip of Trump’s “Liberation Day” tariffs aimed at dozens of countries. Trump also facilitated the specific rates of the sector aimed at cars and retreated the tasks of some goods in Mexico and Canada.
Even so, a general 10% rate applies to almost all imports, except semiconductors, pharmaceutical products and some other items. However, these rates are in the legal limbo, after a couple of decisions of the Federal Court at the end of last month.
Tariffs remain in place for steel, aluminum and cars, as well as some products from Canada and Mexico.
Warning signals point to the possibility of high prices in the coming months.
Retailers nationwide such as Walmart and Best Buy have expressed alarm on potential price increases as a result of levies.
The Organization for Economic Cooperation and Development, or the OECD, said that this month hopes that US inflation reaches 4% at the end of 2025, which would mark a strong increase in current levels.
The combination of persistent uncertainty along with a solid economic performance can cause the Fed to maintain stable interest rates on Wednesday.
“We do not believe we should be in a hurry,” Powell said at a press conference in Washington, DC, last month. “We believe we can be patient.”
