United States Federal Reserve Maintains Rates

(MENAFN- Daily Forex) The decision was widely expected, and the US Dollar has shown a bullish but muted response Warns Tariffs Could Cause Stagflation

The Fed statement noted that although the US economy was performing well,“uncertainty about the economic outlook has increased further”. The Committee was of the opinion that“the risks of higher unemployment and higher inflation have risen”. This was a clear warning from the Fed that US tariffs have raised the risk of stagflation, a combination of higher unemployment and higher inflation in an environment of lower growth's Pushback against Trump

Ahead of the rate decision, there was little doubt that the Fed would decide to hold rates, but there was a buzz in the markets as to whether Fed Chair Powell would push back against President Trump, who has been lobbying loudly for the Fed to cut rates. Powell didn't disappoint in his press conference, stating that Trump's tariffs had hurt consumer and business sentiment and reiterating the rate statement warning that if the tariffs stayed in place, they would likely cause stagflation. Since the tariff policy was not yet set, the effects on the economy remain“highly uncertain” and the Fed could not be preemptive until it had further data.

Powell added that the Fed“was in a good position to“wait and see”, perhaps a subtle jab at Trump that the Fed was in no rush to lower rates. The markets have responded to Powell's warning about tariffs and his 'wait-and-see” stance by lowering the likelihood of a cut in June to 20%, down from 31% just prior to Wednesday's decision, according to CME's FedWatch Dollar Shrugs, Stock Market Slightly Higher

The Federal Reserve's decision to maintain rates did not move the US Dollar by much, while the US stock market responded with slight gains on Wednesday.

On Thursday, the US Dollar is showing limited movement. The EUR/USD and GBP/USD are largely unchanged. The US Dollar has made inroads against the Japanese Yen, as USD/JPY is up 0.37%.

The stock market posted slight gains on Wednesday in response to the Fed announcement.

The S&P 500 Index climbed 24.37 points (0.43%) and closed at 5,631.28.

The Nasdaq 100 Index rose 76.63 points (0.39%) and closed at 19,867.97. A sharp loss of 7% in Alphabet shares weighed on the tech-heavy Nasdaq.

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