The overall market is spooked after the US Federal Reserve signalled that the risks for an economic slowdown and higher prices are increasing. The Federal Open Market Committee on Wednesday kept the benchmark overnight borrowing rate steady at 4.25%-4.5% as it acknowledged the increased uncertainty about the economic outlook.
“The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” the statement said. The US equities market experienced choppy trading and ceded some gains post-announcement. However, the market ended the session in green.
Asia-Pacific markets also opened cautiously today after US Fed Chair Jerome Powell noted an increased likelihood of an economic slowdown. During his post-decision press conference, Powell said that current tariff levels could lead to slower economic growth, along with a rise in long-term inflation and unemployment.
"We are comfortable with our policy stance," USA Today quoted Powell as saying. "We think right now the appropriate thing to do is to wait and see how things evolve. There's so much uncertainty."
The economic data showed that the GDP of the US contracted 0.3% (annualised rate) in the first quarter of 2025 amid trade war concerns. The contraction was mainly due to tariff-related imports. On the other hand, the nonfarm payroll for April showed that employment jumped 177,000, while the Personal Consumption Expenditures Price Index was unchanged in March after it rose 0.4% in February. The committee also believes that the inflation is still ‘elevated’.
Apart from keeping the rate steady at the latest meeting, Powell signaled a cautious stance on future rate cut expectations. “We are going to need to see how this evolves. There are cases in which it would be appropriate for us to cut rates this year. There are cases in which it would not,” he said. “And we just do not know until we know more about how this is going to settle out and what the economic implications are for employment and for inflation,” he added.
Powell “is sitting on a hornet’s nest of headaches and in that situation, he is going to hold tight,” CNBC quoted Brian Bethune, an economist and professor at Boston College, as saying.
Meanwhile, US President Donald Trump has announced that he plans to discuss ‘a major trade deal with representatives of a big and respected country’. The news conference is scheduled for 10 a.m. Washington time, he said in a Truth Social post. He, however, did not reveal the name of the country. It will be “THE FIRST OF MANY!!!”, he added in the post.
