US Fed opens policy meeting, set to keep rates unchanged

US Fed opens policy meeting, set to keep rates unchanged

The Federal Reserve started a two-day policy meeting Tuesday, with the US central bank widely expected to keep interest rates unchanged despite President Donald Trump's repeated push for cuts.

This is because policymakers are closely monitoring the effects of Trump's wide-ranging tariffs on the world's biggest economy, trying to gauge their longer-term effects on inflation and the jobs market.

Officials began their deliberations at 9:00 am (1300 GMT) in Washington, said the Fed. The central bank is due to publish its decision at 2:00 pm local time on Wednesday.

While the Fed has started lowering the benchmark lending rate from recent highs as inflation cooled after the Covid-19 pandemic, officials have held rates steady this year while tariff uncertainty intensifies.

Interest rates remain between 4.25 percent and 4.50 percent.

But Trump has repeatedly urged the independent central bank to cut rates by one percentage point -- a bigger cut than it has done in recent times.

"The Federal Reserve can be patient and wait to see how the impact of tariffs affect inflation and the labor market this summer," said Ryan Sweet, chief US economist at Oxford Economics.

"Tariffs influence inflation with a lag, and because inflation is still above the Fed's target, the central bank will be reactive than preemptive," he added in a recent note.

While Trump in April slapped a 10 percent tariff on goods from most countries, with steeper rates on imports of steel, aluminum and autos, the broad impact on prices has been limited so far.

Businesses rushed to stock up before many of Trump's tariffs kicked in, and they are still relying on existing inventory.

Sweet added that the Fed should also "be nimble because of geopolitical threats to the economy, like the escalation in Middle East tensions."

Geopolitical shock could raise oil prices, fueling inflation.

On Wednesday, analysts will also be eyeing the Fed's economic projections on inflation, growth and unemployment, for hints on whether it views Trump's tariffs as a one-off or more persistent influence on the economy.