Written by Sarah Foster, Edited by Chris Kahn – 8 Minute read
The U.S. economy has been full of surprises since the Federal Reserve started rapidly raising interest rates to quell inflation back in 2022. The latest shocker might just be that the Trump administration’s tariffs haven’t pushed up inflation more.
Since April, taxes on foreign-made and imported goods have been the highest in nearly a century, after President Donald Trump announced a universal baseline levy on every country that trades with the U.S., introduced massive industry-based tariffs and briefly escalated tensions with China. Even so, price increases — including on the items at the front lines of the trade war — have been relatively tame. Inflation has risen less than economists’ forecasts for the past two months.
The conundrum matters for Fed officials, who’ve pressed the pause button on their rate cuts out of fear that they might make any tariff-induced price shock worse.
Those price increases could still be coming. Earlier this year, companies rushed to build up inventories in anticipation of Trump’s tariffs, but that extra supply will eventually run out. The Fed could temper inflation by keeping rates high, but that strategy comes with risks of its own, at a time when the latest economic data suggests that cracks could be forming in the once-formidable U.S. job market.
The Fed has been sitting back, evaluating economic data amidst all the uncertainty. The old saying that you skate to where the puck is going to be — if you don’t know where the puck is going to be, you can’t skate to it.
— Greg McBride, CFA, Bankrate chief financial analyst
The Fed’s rate-setting Federal Open Market Committee (FOMC) is unlikely to feel confident enough that they can get back to cutting borrowing costs when they announce their next interest rate decision on June 18, economists interviewed by Bankrate say. That means the price that you pay to finance big-ticket purchases — from a car to a home remodel — will remain at a near-decade high. The returns you earn on your savings, meanwhile, will stay competitive, especially if you’re keeping your cash in a nontraditional, online bank that rewards its depositors with high yields.
Beyond not knowing how tariffs could impact the economy, another landmine that officials may have to navigate is political pressure. Trump in recent weeks has renewed his attacks on the U.S. central bank, saying Fed Chair Jerome Powell is always “too late” to adjust borrowing costs and that he “might need to force something.” After job growth in May topped expectations, Trump demanded that the Fed cut their key borrowing benchmark a full point. Vice President J.D. Vance even started to join the chorus of calls for rate cuts after May’s surprisingly tame consumer price index (CPI) report, describing keeping rates high as “monetary malpractice.”
Trump told reporters in early June that he’ll announce his pick for Fed Chair Jerome Powell’s replacement “very soon.”
Here are the biggest themes to watch at the Fed’s next meeting, including why the Fed isn’t cutting borrowing costs yet — and whether there could be some legitimacy to Trump’s calls for lower rates.
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