The Fed Leaves Fed Funds Rate At 4.5% As Economic Storm Clouds Gather

2025-05-08 23:05:00 ET

Summary

• On Wednesday, the Federal Reserve’s Federal Open Market Committee left the target federal funds rate unchanged at 4.25-4.5 percent.
• The Fed is simply dismissing the first quarter GDP report, which showed a fall of 0.3 percent in GDP for the period.
• If the Fed is now willing to say that the risk of stagflation is rising - which is what both higher unemployment and higher (price) inflation would mean - there is reason for concern.
• With business outlooks falling to “pre-pandemic lows” it’s unclear just how “solid” the economic growth continues to be.

By Ryan McMaken

On Wednesday, the Federal Reserve’s Federal Open Market Committee left the target federal funds rate unchanged at 4.25-4.5 percent. The FOMC statement on the current policy, released on Wednesday, reads (my emphases in bold):

Although swings in net exports have affected the data , recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage?backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

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