On May 12, 2025, the Federal Reserve announced its decision to maintain the federal funds rate within the target range of 4.25% to 4.50%. This decision reflects the central bank's cautious approach amid ongoing global economic uncertainties, including recent developments in U.S.-China trade relations.

Federal Reserve Governor Adriana Kugler highlighted the challenges in accurately assessing the underlying strength of the U.S. economy due to volatile trade policies and their impacts. She noted that the uncertainty from shifting trade policies—especially tariffs—has distorted economic indicators by prompting consumers and businesses to make early purchases to avoid potential cost increases. This front-loading effect contributed to a spike in imports, skewing first-quarter GDP figures, while potentially weakening future consumption. Kugler also acknowledged that evolving trade dynamics could significantly affect inflation and growth, though the timing and extent remain unclear. The diplomatic pause in tariffs reduced expectations for imminent Federal Reserve interest rate cuts, as it may bolster economic growth. She affirmed the Fed's intention to maintain the current interest rate range of 4.25%-4.50% until further clarity emerges, citing balanced risks and a cautiously restrictive stance to manage inflation and economic uncertainty.

The recent 90-day tariff truce between the U.S. and China has influenced the Federal Reserve's stance. This pause reduced expectations for imminent interest rate cuts, as it may bolster economic growth. The temporary agreement lowers tariffs on Chinese imports from a peak of 145% to 30%, reducing the risk of inflation and goods shortages, allowing the Fed to maintain a patient stance on monetary policy.

Following the Federal Reserve's announcement, U.S. bond yields rose, and stock futures gained, with traders now anticipating the first rate cut in September and expecting only a half-point reduction for the year. The dollar's rise after the tariff announcement is also expected to help contain inflation. Despite resilient "hard" data, weak sentiment indicators signal potential trouble ahead. Critics argue the Fed's gradualism and lack of clear policy direction could backfire, especially if deteriorating conditions become evident too late.

Former President Donald Trump renewed his attacks on Federal Reserve Chair Jerome Powell, labeling him a "fool" for not cutting interest rates. Trump criticized Powell's decision to maintain the Fed's borrowing rates at 4.25%-4.50%, arguing that lowering them would significantly boost the economy. He dismissed inflation concerns and claimed prices on essentials like energy and groceries were down. Powell, however, stated that the current economic data does not warrant immediate action, and the Fed will wait for more clarity on the effects of tariffs before altering monetary policy.

As the Federal Reserve navigates the complexities of trade uncertainties and market volatility, its commitment to data-driven decision-making and maintaining economic stability remains paramount. The coming months will be crucial in determining the trajectory of U.S. monetary policy and its broader economic implications.