Fed keeps interest rates steady, uncertainty over tariffs still looms: CEI analysis

The Federal Reserve has decided to keep interest rates steady in its goal to lower overall inflation. While there have been fewer shakeups in the financial sector than previously expected, upcoming deadlines for tariff promises and a dubious economy are keeping the Fed in an awkward position, CEI senior economist Ryan Young says.

“As expected, the Federal Reserve is holding interest rates steady. This time it sounded a more optimistic note, citing recent indicators showing that economic growth may be resuming after last quarter’s contraction. While policy is still unstable, the six weeks since the Fed’s last meeting have had fewer earthquakes in financial markets, tariffs, and other economic issues.

“The Fed is still in a tough spot. Massive Liberation Day tariffs might phase in on July 9, and they might not. Tariff-related price increases will continue to phase in over at least the next two months, on top of ongoing monetary inflation. Republican spending plans will increase the deficit, as well as interest payments on federal debt. Social Security and Medicare will be insolvent in just eight years, making reforms more urgent.

“All this puts the Fed in a no-win scenario. The usual way to deal with higher inflation is with higher interest rates. But the tradeoff to this is often slower growth, and the economy is still reeling from President Trump’s initial tariff burst. Lower interest rates could perk up a slower economy, but at the tradeoff of higher inflation, which is already in an uncertain place.”