• Federal Reserve holds rates steady despite political pressure, citing rising inflation and unemployment risks.
  • Business surveys show tariffs are disrupting supply chains and pushing prices higher across industries.
  • J.P. Morgan revises economic forecasts downward, predicting tariff-induced inflation bump of 0.2 percentage points.

Fed Maintains Rates Amid Tariff Uncertainty

The Federal Reserve held interest rates unchanged at its May meeting, with Chair Jerome Powell highlighting tariffs as a significant factor shaping inflation expectations. The decision comes as new ISM survey data reveals widespread business concerns about tariff-driven price increases, particularly in manufacturing sectors.

"There's a lot of concern about the inflationary impacts from tariffs in our industry," one metal fabricating manager told surveyors. "Domestic producers are charging more for everything because they can." The Fed's updated policy statement acknowledged these pressures, noting increased risks to both inflation and employment.

Economic Tightrope

J.P. Morgan Research now forecasts the tariffs will:

  • Reduce 2025 U.S. GDP growth by 0.2 percentage points to 1.3%
  • Push PCE inflation to 2.7% (up 0.2 points)
  • Increase core PCE inflation to 3.1% (up 0.3 points)

The bank's analysts describe the situation as particularly challenging for policymakers, with tariffs simultaneously creating inflationary pressures while potentially slowing economic activity. "We wouldn't look for a rate cut to happen until September," said J.P. Morgan's chief U.S. economist Michael Feroli, citing the need for clearer economic signals.

Political Crosscurrents

The Fed's decision comes amid escalating criticism from former President Trump, who recently called Powell "a major loser" on social media and demanded rate cuts. Political observers note the central bank faces a delicate balancing act, with potential economic slowdowns likely to draw further attacks regardless of policy decisions.

Market participants will be watching upcoming employment and inflation data closely for signs of whether the economy is tilting toward stagflation - the worst-case scenario where prices and unemployment rise simultaneously. For now, the Fed appears committed to its wait-and-see approach, with Powell emphasizing data dependence in his latest remarks.