In a predictable move, the Federal Reserve rate meeting resulted in its benchmark interest rate being held steady at a range of 4.25-4.5%. A cut was not in the forecast as the current inflation rate continues to run above target. With inflation only slightly above its mark, the Federal Open Market Committee (FOMC) is taking a “wait and see” approach as it navigates an uncertain economic landscape that could be shaped by the current trade war, among other things.
Fed Chair Jerome Powell makes note of this during the post-meeting news conference: “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
Trade Policy Uncertainty Influences Federal Reserve’s Decision-Making
The Fed is taking a watchful stance as it monitors the impact of the Trump Administration raising tariff rates to a scale not seen since World War II. Case in point, tariff rates of 145% have been placed on China, a level viewed as a trade embargo, which is typically used as a powerful economic tool to pressure a nation to comply.
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Treasury Secretary Scott Bessent is set to meet with Chinese trade negotiators in Switzerland this weekend with the goal of de-escalating the trade war. Bassent shared his thoughts on X regarding the upcoming meeting, explaining, “Thanks to @POTUS, the world has been coming to the US, and China has been the missing piece—we will meet on Saturday and Sunday to discuss our shared interests. The current tariffs and trade barriers are unsustainable, but we don’t want to decouple. What we want is fair trade.”
The outcome of this meeting is certainly unpredictable; it could go either way, which seems to be the ongoing theme of the current trade war.
It’s clear that tariffs are on the Fed’s radar when contemplating the next key interest rate move, as Powell states, “There’s so much uncertainty about the scale, scope, timing of the tariffs.” Also adding, “We’re in a new phase, where the administration is beginning talks with a number of our important trading partners, and that has the potential to change the picture materially, or not. And so I think it’s going to be very important, how that shakes out.”
Tariff Policies Could Lead to a Slowdown in Economic Growth
With elevated tariffs on the table, the U.S. faces the risk of an economic slowdown, as well as persistent inflation. These elements could cause the Fed to experience a delay when moving towards its goals, which ultimately means interest rates may be stuck at higher levels for an extended period of time.
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What steps could they potentially take given the circumstances? It’s a tough call because, as Chris Zaccarelli, chief investment officer for Northlight Asset Management explains, “The Federal Reserve is in a bind—with concerns about inflation and an economic slump, which will lead to higher unemployment, pulling them in two opposite directions. Because of this, the Fed is going to have to wait for unemployment to spike before they resume cutting rates, and by that point, it might be too late.”
Although Powell did say that slower job growth is less concerning now, and that it’s too early to know whether employment or inflation should take priority.
Expectations for the Federal Reserve’s Next Interest Rate Meeting
Based on the CME Group’s FedWatch tool, the current market projections indicate a 26% chance of a rate cut at the June 18 meeting. However, Investors appear to be leaning toward the likelihood of a cut occurring in the latter half of next year. It’s clear the Feds are not too concerned about rushing into anything, though, “We don’t feel like we need to be in a hurry. We feel like it’s appropriate to be patient. And when things develop, of course we have a record of, we can move quickly,” states Powell.
Achieving Financial Stability Regardless of Economic Conditions
It’s difficult for some individuals to even picture themselves being financially stable or even financially independent for that matter. Why is this the case? Because the economy, Wall Street, and the U.S. dollar have been on shaky ground for some time now. Additionally, the key interest rate may not come down anytime soon, and inflation is eating away at the average worker’s paycheck.
A more secure path to achieving financial stability is not investing in anything connected to the U.S. government, including a 401(k) that will plummet the moment Wall Street tanks. The best path to take would be to invest in tangible assets such as real estate or gold. No matter how hard the economy crashes and the dollar sinks, these investment types are safe, at least that’s what their history tells us.
In fact, while the pandemic swept through the nation, retirement accounts lost hundreds of thousands of dollars, but real estate and gold rose in value, and they are still rising.
Related Article: Investors Gain Edge in Market Dominated by Inflation, High Rents and Low Housing Inventory
If you’d like to look into safeguarding your wealth by investing in real estate, feel free to book a call with Morris Invest. Our full-service investment company offers new construction rental properties that typically yield 18-20+% IRR, as well as below-average mortgage rates.
Before you go, dive into the following video that details how inflation is stealing your money:
