Fed Hits Pause on Rate Hikes as Inflation Chills and Wallets Tighten
Wall Street breathes—for now—as the Federal Reserve holds rates steady amid cooling inflation and consumer spending fatigue.
No more blood from stones: After two years of aggressive hikes, the Fed finally taps the brakes. Markets yawn—because let’s be honest, everyone saw this coming.
Main Street’s pain becomes Wall Street’s gain... again. Just don’t ask about the national debt.
Fed freezes as tariffs drive caution
On the same day the inflation data came out, the government also reported that consumer spending only grew 0.2% in April. That’s weak. Meanwhile, the personal saving rate jumped to 4.9%, up from 4.3%. Households are saving more and spending less, likely because tariff policy changes so frequently that people are bracing for whatever comes next.
Karim Basta from III Capital Management put it simply: “There’s nothing to do but wait.”
Since December, the Fed has held short-term rates between 4.25% and 4.50%. And after their most recent meeting in May, officials made clear they’re focused on inflation. Multiple policymakers said they’re worried that Trump’s tariffs could wipe out any progress on prices.
Mary Daly, President of the San Francisco Fed, said on Thursday that inflation is still above target. “Inflation is going to be my focus,” she said. Daly also emphasized that rates have to stay “moderately restrictive” to keep downward pressure on prices.
Later that evening, Lorie Logan, who leads the Dallas Fed, said it could be “quite some time” before the Fed knows if Trump’s trade policies will do more damage to jobs or prices. She said those risks are “in rough balance,” and that’s enough reason for the Fed to stay on hold.
Still, traders are betting that by September, the Fed will start cutting rates slowly. They expect the policy rate to land between 3.75% and 4.0% by the end of the year. But unless inflation drops hard or unemployment jumps, the Fed is showing no sign of blinking.
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