The Federal Open Market Committee continued its freeze on interest rates Wednesday, but indicated it expects at least one cut before the end of the year.
The FOMC elected to keep its target rate at 4.25 to 4.5 percent after its meeting. Rates have remained at the level since December 2024, five straight meetings.
Federal Reserve Chairman Jerome Powell cited continued uncertainty on the impact of tariffs on the overall economy led to a measured approach by the FOMC.
“The amount of the tariff effects, the size of the tariff effects, their duration, and the time it will take are all highly uncertain. So that is why we think the appropriate thing to do is to hold where we are as we learn more. And we think our policy stance is in a good place where we’re well-positioned to react to incoming developments,” Powell said.
Pointing to a current 2.3 percent annual inflation rate and a strong labor market with 4.2 percent unemployment rate and an average growth of 135,000 jobs per month, Powell said they are able to wait for more data on the tariffs.
“From our standpoint, what I can say is that the U.S. economy is in solid shape,” Powell said. “Inflation has come down. The unemployment rate is 4.2 percent. Real wages are moving up. Job creation is at a healthy level, unemployment is low, and labor force participation is in a good place. And what we’re waiting for to reduce rates is to understand what will happen with the tariff inflation. There’s a lot of uncertainty about that.”
Members of the committee presented their quarterly forecast, which projected rates falling to 3.9 percent by the end of the year. Members are expected to fall to 3.6 percent by the end of 2026 and 3.4 percent in 2027.
Powell cautioned that those projections are not policy and decisions will be based on additional inflation and labor data. He said data over the next few months will help provide some clarity on the impact of tariffs.
“We feel like we’re going to learn a great deal more over the summer on tariffs,” Powell said. “We hadn’t expected them to show up much by now, and they haven’t. And we will see the extent to which they do over the coming months. That’s going to inform our thinking. In addition, we’ll see how the labor market progresses. At some point, it will become clear. I can’t tell you when that will be. We’ll be watching the labor market carefully for signs of weakness and strength, and tariffs for signs of what’s going to happen there. There are many developments ahead.”
Interest rates for automobiles remain elevated. According to Experian, the average used vehicle finance rate in the first quarter of 2025 was 11.87 percent, which was down slightly from the 12.36 percent in 2024.
