The Federal Reserve is set to announce its first interest rate decision since President Donald Trump’s tariffs sparked a global trade war, sending stock markets into a tailspin and fueling fears of a potential recession.
The decision comes less than two weeks after Fed Chair Jerome Powell warned that tariffs could drive up prices, while emphasizing a patient approach as Trump’s economic policies take shape.
“We are focused on parsing the signal from the noise as the situation evolves,” Powell said at an economic forum in New York City. “We are not in a hurry.”
Despite market turbulence, investors widely expect the Fed to hold interest rates steady at its meeting on Wednesday, according to the CME FedWatch Tool, which tracks market expectations for rate changes.
Earlier this month, the Trump administration imposed 25% tariffs on goods from Mexico and Canada, though the White House later delayed some of the duties for a month. Meanwhile, a fresh round of tariffs on Chinese goods doubled the previous rate set just a month earlier.
The trade tensions escalated further last week when Trump’s tariffs on steel and aluminum triggered retaliatory tariffs from Canada and the European Union, adding to countermeasures already imposed by China.
The S&P 500 fell more than 10% from last month’s peak, officially entering a market correction—its first since October 2023. The Dow Jones Industrial Average also suffered its worst one-week decline since March 2023.
Despite market volatility, some key economic indicators remain strong. The latest jobs report showed steady hiring and an unemployment rate near historic lows. Meanwhile, inflation has cooled significantly from its 2022 peak, though it still sits nearly a percentage point above the Fed’s 2% target.
The Fed has already lowered rates by one percentage point over the past few months, retreating from its aggressive anti-inflation stance. However, its benchmark interest rate remains at a historically high 4.25%–4.5%.
Trump, who has repeatedly criticized the Fed, has renewed his calls for further rate cuts, arguing that lower rates are essential for boosting economic growth amid trade tensions.
With markets on edge and economic uncertainty mounting, all eyes are on the Fed’s next move.
