00:00 Speaker A
We’re counting down to the Federal Reserve’s interest rate decision, due out 2:00 p.m. Eastern Time today. The Fed expected to hold rates steady, despite pressure to cut from President Trump. Yahoo Finance’s Jennifer Schonberger has more on what to expect. Jennifer, what are you looking forward to here?
00:17 Jennifer Schonberger
Good morning, Brad, and the Federal Reserve just kicked off the second day of their two-day policy meeting moments ago here in Washington, where they’re widely expected to hold rates steady in the range of 4 and a quarter to 4 and a half percent for the fourth meeting in a row. All eyes, however, will be on whether the Fed still sees two rate cuts this year. And at the heart of this really lies just how much inflation the Fed sees ahead. Back in March, the Fed saw inflation rising to 2.8% this year from two and a half projected back in December. Some economists expect that will be ratcheted higher this afternoon. But inflation in April, as measured by the Fed’s preferred inflation index, the Personal Consumption Expenditures Index, clocked in at 2.1%, practically at the Fed’s 2% goal. And adjusting for volatile food and energy prices, inflation rose two and a half percent, dropping from March. And in May, the Consumer Price Index also showed a mild reading on inflation. So why then, when tariffs had kicked in full blast starting in April and inflation basically hit their 2% goal, is the Fed holding rates steady in the range of 4 and a quarter to 4 and a half percent? Well, it’s the risk that tariffs pose ahead and the uncertainty around that. Will tariffs lead to higher inflation or not? Two months is not likely enough for the Fed to tell. Minutes from the Fed’s last policy meeting showed almost all Fed officials expected inflation from tariffs to be longer lasting. But we’re also constantly seeing the chance for changes to tariffs, for instance, this week with Canada and the US working to potentially eliminate steel and aluminum tariffs. On the flip side, will lower growth ensue instead because consumers can’t swallow higher prices if they occur? Fed Chair, Jay Powell, and the Fed are likely to continue that wait-and-see approach. That’s why many think it’s likely they will actually keep two rate cuts for this year. They don’t want to change much when the outlook is changing so much, and they’re just unsure. Brad.
03:22 Speaker A
Jennifer, we also know what’s playing out in the Middle East and in that conflict. How does that factor into the Fed’s outlook? And what are we expecting to hear?
03:33 Jennifer Schonberger
They are certainly going to be watching what’s going on in the Middle East closely, particularly as it pertains to oil prices. But at this juncture, Brad, I just wouldn’t expect them to actually integrate any of that into their actual outlooks for inflation and growth. However, if we do see things worsen, if oil facilities were to be struck and that caused a spike in oil prices, then certainly that may be taken to consideration.
04:18 Speaker A
Thank you so much, Jennifer. Everyone can stay with Yahoo Finance all day for more coverage on the Fed. We’ll bring you the decision live 2:00 p.m. Eastern when it crosses, followed by Fed Chair Jerome Powell’s press conference at 2:30 p.m. Eastern Time.
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