San Francisco Frontiers - US Fed pauses cuts again and flags inflation, unemployment risks

Policymakers voted unanimously to hold the US central bank's key lending rate at between 4.25 percent and 4.50 percent, the Fed said in a statement.

Speaking to reporters in Washington after the decision was published, Fed Chair Jerome Powell said there was "a great deal of uncertainty about, for example, where tariff policies are going to settle out."

The bank has a dual mandate to act independently to tackle inflation and unemployment, primarily by hiking, holding, or easing its benchmark lending rate.

Many analysts have warned that the administration's actions will likely push up inflation and unemployment, while slowing growth -- at least in the short run.

The Fed said that "swings in net exports" did not appear to have affected the solid economic activity -- a nod to the pre-tariff surge in imports in the first quarter ahead of the introduction of Trump's "liberation day" tariffs.

The US president introduced steep levies last month on China, and lower "baseline" levies of 10 percent on goods from most other countries, sparking weeks of turbulence in the financial markets.

The White House also slapped higher tariffs on dozens of other trading partners, and then abruptly paused them until July to give the United States time to renegotiate existing trade arrangements.

Data published in recent weeks point to an economic contraction in the first quarter of the year, while the unemployment rate has hovered close to historic lows, and the inflation rate has trended towards the Fed's long-term target of two percent.

- Rate cuts delayed -

Powell also faced questions on the recent public criticism leveled at him and the Fed by senior government officials -- including the president, who has called for him to cut rates to boost economic growth.

An upbeat Powell said the criticism from Trump "doesn't affect doing our job at all."

"We are always going to consider only the economic data, the outlook, the balance of risks, and that's it," he added.

Following the April tariff rollout, many analysts pared back or delayed their expectation of rate cuts for this year, predicting that tariffs will push up prices and slow growth -- at least in the short run.

"It seems highly unlikely that the Fed will receive a clear enough signal to act by the June meeting, since the 90-day pause on 'reciprocal' tariffs lasts through 8 July," economists at UniCredit wrote in a recent note to clients, adding they did not expect a rate cut before September.

"The best course of action for the FOMC may simply be to wait for more clarity about trade policy and its implications for the U.S. economy," Wells Fargo chief economist Jay Bryson wrote in an investor note after the decision was published by the Fed's rate-setting Federal Open Market Committee.

Q.Nelson--SFF