he US Federal Reserve’s FOMC (Federal Open Market Committee) on Wednesday, May 7, 2025, decided to keep the key benchmark interest rates steady and “unchanged,” citing the risks of economic uncertainty and inflationary pressures on the US economy.

The central bank kept its interest rate unchanged for the third straight policy meeting since January, when Donald Trump made his White House comeback. 

Even though the Federal Reserve did not share any rate cut projection, like the March 2025 policy announcement, the committee said that they are going to observe the upcoming US economic data and the evolving outlook of United States to balance the risks in the economy.

Powell cited the risk of high inflation and high unemployment, which appears to have risen due to the current economic development and the trade war.

US Fed Policy May 2025: Here are 5 key highlights

1. US Fed’s decision to keep key interest rates ‘unchanged’

The US Federal Reserve maintained its federal lending rates in the range of 4.25 to 4.50 per cent in a slightly hawkish policy announcement on Wednesday, May 7, 2025, over risks of high inflation and unemployment rates prompted by economic uncertainties.

“Our Open Market Committee decided to leave our policy interest rate unchanged, the risks of higher unemployment and higher inflation appear to have risen, and we believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments,” said US Fed Chair Jerome Powell in his media statement. 

2. Increasing economic uncertainties

Even though Powell said that the US economy is in a “solid position,” the elevated risks of uncertainties related to the economic outlook still prevail in the economy.

According to a survey conducted by the Federal Reserve, Donald Trump’s trade policy has emerged as a cause behind the sharp decline in sentiment and elevated uncertainty about the nation’s economic outlook.

“It remains to be seen how these developments might affect future spending and investment,” said Powell.

The tariff situation has been “significantly larger than anticipated”, and as the policies are still evolving, their effects on the US economy remain “highly” uncertain.

Powell reassured the people of the nation that the Fed will continue to evaluate the appropriate stance of the monetary policy based on economic data. 

3. Elevated Inflation risks

The US Fed Chairman, Jerome Powell, also highlighted how inflation has eased from its high level in mid-2022. However, it is still hovering above the 2 per cent long-term objective mark.

“The risks of higher unemployment and higher inflation appear to have risen, and we believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments,” said Powell.

The Fed Chairman also flagged that in case the large rises in the Trump tariffs sustain for longer periods, they will likely be responsible for the rise inflation and slowdown in economic growth, in turn increasing unemployment.

“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” said Powell. 

4. Powell’s response to Trump’s criticism

Fed Chairman Jerome Powell, in his press briefing, responded to criticism of US President Donald Trump questioning his role as the head of the central bank. Powell said that Trump’s views do not affect his job at all, and he will be adhering to the monetary tools available at the US Fed to cater to the US economy. 

“Doesn’t affect doing our job at all. We’re always going to do the same thing, which is we’re going to use our tools to foster maximum employment and price stability for the benefit of the American people,” said Jerome Powell. 

Powell and his team will always consider economic data over any other stance, said the Chairman in his press brief on Wednesday. 

5. US Market, Dollar reacts

The US stock markets momentarily dropped as the Federal Reserve announced its policy outcome to keep the benchmark interest rate steady. The US markets quickly recovered from their fall and closed higher after Wednesday’s trading session.

The Dow Jones Industrial Average closed 0.70% higher at 41,113.97 points, compared to 40,829 points at the previous trading session. The S&P 500 index also closed with 0.43% gains at 5,631.28 points, compared to 5,606.91 points at the previous market close.

The Nasdaq Composite index closed higher after trading lower in most of Wednesday’s trading session. The index closed 0.27% higher at 17,738.16 points, compared to 17,689.66 points at the previous Wall Street close.

According to the Bloomberg US Dollar Spot Index, the US greenback was trading 0.67 per cent higher at 99.904 as of 4:32 p.m. (EDT) on May 7, 2025. The dollar rates jumped after the Federal Reserve decided to keep its key interest rates steady in the May 2025 policy meeting.

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