Powell warns of higher inflation, unemployment as Fed keeps rates steady

Thanks for following along with our live coverage of the Federal Reserve’s May meeting. For more information on how the Fed impacts you, check out more of Bankrate’s Fed coverage. 

The Federal Reserve and your money

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There were times in recent history when the Federal Reserve seemed to dictate mortgage rates. At the beginning of the pandemic, the Fed slashed its benchmark rate to zero, and mortgage rates plunged. Then in 2022 and 2023, policymakers aggressively raised rates, and mortgage rates shot up.

Now, though, there’s an obvious separation between the Fed’s zigs and the mortgage market’s zags. Keep in mind that the Fed has never directly set mortgage rates; rather, they’re often tied to 10-year Treasury yields.

On a hopeful note for homebuyers: Mortgage rates have held below 7 percent for all of March and April, creating some modest relief. As of today, 30-year fixed mortgages were averaging 6.82 percent, according to Bankrate’s survey.

Federal student loan borrowers may see their monthly payments change, but it won’t be because of what the Fed does with rates. While private student loans with variable rates may be affected by the Fed’s rate decisions, federal loans aren’t.

But that doesn’t mean other factors can’t influence what you pay. If you have federal student loans, here’s what could change your payment:

Coming out of forbearance or a grace period: Borrowers who are currently in a deferment, forbearance or grace period will need to resume payment once that program ends, at which time their $0 payment will increase to some amount.

Switching from the SAVE plan: The SAVE plan was the most affordable income-driven repayment (IDR) plan, bringing payments down to 5 percent of discretionary income. But after a February court ruling blocked SAVE, the plan is essentially dead. Borrowers in SAVE must change to a new repayment plan soon. This could increase their monthly payment substantially as the minimum amount due is now 10-15 percent of discretionary income. 

Updating your income: Every year, borrowers enrolled in an IDR plan must recertify their income. If their income has grown, their monthly payment may increase. If their income has decreased or their family size has grown, their payment may go down.

Hitting two years of graduated repayment: If you’re on the graduated repayment plan, your payment will increase every two years. These payments are calculated to ensure you pay the loans off within 10 years. 

Refinancing: If you refinance your student loans, you roll them into one private loan with one interest rate and monthly payment. This can lower your monthly payment by reducing your interest rate and extending your loan term. However, refinancing your federal loans is not recommended as you’ll lose certain benefits, including access to IDR plans and possible loan forgiveness.

The Fed’s rate has a small impact on auto loans because lenders use it to set their minimum interest rates. New auto loans, however, have remained at a steady 7.3 percent to 7.5 percent APR since November 2024, even though the Fed cut rates three times last year. 

Your financing options will depend on other economic factors more than it will on the Fed’s rate. Tariffs, even with a recent change to limit tariffs on vehicles assembled in the U.S., may cause a significant price increase for cars and parts. They are expected to limit the amount of new vehicles entering the market, which can inflate the value of used cars, as we saw during 2022. While this won’t directly affect your auto loan rate, it will mean you need to borrow more. A larger loan results in a higher monthly payment and more paid in interest over the loan term.

Lenders are also experiencing low risk tolerance. Nearly 70 percent of loans funded in the fourth quarter of 2024 were for borrowers in the prime or super prime categories — those with scores of 660 or higher — according to data from Experian. If you don’t have an immediate need for a car, be patient. See where the market goes and work on improving your credit to qualify for financing when you do need an auto loan.

Ultimately, the goal of the Federal Reserve is to offset inflation and provide stability to the market. Whatever decision it makes will cause ripple effects for auto loans, but tariffs and rising insurance costs could have a bigger impact on your budget. Auto loan rates shouldn’t change much, so focus on building your credit score to secure competitive rates. At the very least, a low interest rate on your auto loan will help keep costs down.

Interest rates affect your ability to secure funding, but their implications on the greater economy can also impact your business

The Federal Reserve’s choice to keep interest rates steady is keeping business loan interest rates and borrowing costs somewhat high, stalling growth for small business owners and capping how much they’ll likely borrow.

The prime rate sets the tune for the interest rates, factor rates and APRs that lenders set for small business loans, lines of credit and business credit cards. Rates are still elevated, influencing small businesses to take out smaller loans or curb growth and hiring. This is one of the ways the Fed hopes to manage inflation. 

The decision to keep rates where they are is a fraught one for small business owners, who are currently facing an uncertain economic environment with the ever-evolving tariff situation. With businesses now dealing with growing costs from import taxes, many are faced with finding new suppliers, passing on the costs to an inflation-weary customer base or cutting into already-thin profit margins. 

While the Federal Reserve seems to be holding off on lowering interest rates for now, there are a few steps small business owners can take to protect themselves in the coming months. 

• Fortify your cash reserves. If you have an emergency expense, borrowing in a high-rate environment can be more expensive in the long run. Keep some cash to help you cover a slow month or pay for unexpected costs. 
• Talk to your suppliers and adapt where you can. As the tariff situation continues to evolve, see where you can change your inventory and supply chain to get supplies from lower-tariffed areas , or from local sources. 
• Focus on high-interest debt. Pay off loans that are costing you the most, and see if you can save more by taking advantage of prepayment discounts or refinancing. 

It’s rare to see inflation and unemployment rise at the same time. But Powell said that remains a possibility, and that appears to be one reason the Fed has been hesitant to adjust interest rates any further.

“We don’t have it yet, and we may not have it, but we have to keep it in our thinking,” Powell said. “If we did see significant deterioration in the labor market, of course, that’s one of our two variables, and we would look to be able to support that. You would hope it wasn’t also coming at a time when inflation was getting very bad.” 

Fed Chair Jerome Powell appeared visibly uncomfortable at the post-meeting press conference when asked whether he still thinks whether the U.S. central bank can still achieve a soft landing of the economy. 

He paused and cleared his throat several times before saying: “What looks likely given the scope and scale of the tariffs is that certainly the risks to higher inflation and higher unemployment have increased. At least for the next, let’s say, year, we would not be making progress toward those goals, if that’s the way the tariffs shake out.”

Powell, however, added that higher unemployment and higher inflation “haven’t materialized yet” in the data. And all of this depends on whether the full scope of Trump’s “Liberation Day” tariffs are implemented.

Fed Chair Jerome Powell is speaking with journalists now, and he’s found every possible way to stress that the U.S. central bank is in no rush to cut interest rates — even as recession odds increase. 

A sampling of some of his quotes: 

• “We’re comfortable with our policy stance”
• “We think we’re in the right place to wait and see how things evolve”
• “We don’t feel like we need to be in a hurry”
• “We think it’s appropriate to be patient” 

It’s noteworthy because the Fed has sometimes “preemptively” cut interest rates before any weakness showed up in the data, as was the case in 2019 during Trump’s first-term tariffs. Of course, inflation was below the Fed’s target back then, meaning the U.S. central bank might have less flexibility to be quick. 

As the markets, pundits, and the White House clamor for lower rates, the cause of those lower rates is relevant. 

There are two scenarios that might get us below a 4% federal funds rate, but they aren’t created equal. Vanquishing inflation would lead to celebratory rate cuts, and would be unabashedly positive. Emergency rate cuts, caused by runaway layoffs and economic disarray, would be a tragedy and mean the American people are in for a recession and lean times. 

The Fed is walking a tightrope trying to avoid the latter and deliver the former.

The Fed delivered a new warning about the economy after its meeting today:

The FOMC is “attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” officials wrote in their post-meeting statement. “Uncertainty about the economic outlook has increased further.”

Translation: The Fed is officially acknowledging that its two goals — stable prices and maximum employment — could soon be at odds with each other. Reading between the lines, they seem to be acknowledging that there’s a real risk for “stagflation,” an environment where both the economy slows yet prices rise.

The Fed’s statement is usually short and to the point, intended to represent the consensus view on the committee. 

FOMC skips another interest rate cut despite growing worries about a recession

The Federal Reserve is extending its pause on interest rate cuts, with officials voting on Wednesday to keep interest rates steady for the third consecutive meeting.

Here’s what it tells us:

• Officials are signaling they’re more concerned about inflation than the possibility of a recession: The U.S. central bank’s next moves are looking increasingly uncertain amid President Donald Trump’s volatile trade war. On the one hand, the magnitude of tariffs from the White House could lead to supply shortages and push up prices. On the other, consumers are already bracing for higher costs and could cut spending, prompting some businesses to lay off workers. 
• Officials want more clarity on how tariffs are impacting the economy: The U.S. economy doesn’t look like it’s taking a turn yet. Joblessness is near the Fed’s goals, while inflation is now just 2.4 percent — the closest it’s been to the Fed’s target since a combination of pandemic-era stimulus and supply shocks resulted in the worst inflation crisis in four decades. Still, other “soft” economic data is looking weak. Consumers’ economic confidence has dropped to its lowest level in 14 years. Had fears of higher prices from tariffs not been on the table, the U.S. central bank might’ve considered cutting borrowing costs today. 
• Borrowing costs, but savings yields, will stay elevated: The decision means the key interest rate that influences how much you pay to borrow money — from credit cards and auto loans to home equity lines of credit (HELOCs) and adjustable-rate mortgages — will continue to hold near a decade-plus high. The federal funds rate is in a target range of 4.25-4.5 percent, the highest since 2007. Returns on savings accounts will remain competitive thanks to historically high interest rates. Savers who’ve been parking their cash in a high-yield savings account have been earning an inflation-beating return for more than two years.

Looking for our full breakdown? Read more at: Fed skips another interest rate cut despite growing worries about a recession.

Competitive savings accounts continue to outpace inflation

Between the time the Federal Reserve announced it was holding rates steady (March 19) and May 1, the top savings annual percentage yield (APY) tracked by Bankrate decreased 10 basis points (or 0.1 percentage point) from 4.54 percent to 4.44 percent APY. Meanwhile, the top five-year CD dropped from 4.3 percent to 4.2 percent APY, while the best one-year CD rate held steady at 4.4 percent APY. 

These drops may seem slight, but they’re significant. Why, despite the Fed’s pause? Because while such a pause generally causes stability in banks’ APY offerings, some financial institutions may decide to change their APYs in anticipation of – and after – Fed rate moves. 

You want a competitive yield, and one that outpaces inflation. Consider this: In March 2023, the top yield on a savings account was around 5 percent APY, but inflation was also 5 percent. Translation: Savers didn’t have much, if any, purchasing power of their savings and didn’t earn any return on their interest. Now, however, the top savings yield is at 4.4 percent APY, with inflation two percentage points lower at 2.4 percent. As such, savers are now retaining purchasing power, earning yields in high-yield savings accounts that are higher than the rate of inflation.

American Express and Chase recently hiked rates as recession worries loom

The Fed hasn’t adjusted its policy rate since December 2024, so credit card rates have been largely stuck in neutral for months. The average credit card rate is 20.12 percent, down slightly from 20.27 percent at the end of 2024, but still within shouting distance of the all-time high (20.79 percent from August 2024). Absent a Fed rate change, credit card rates usually don’t move much; therefore, it caught my attention that four of the 111 popular credit cards we survey recently began charging higher rates on new customer offers.

While credit is still flowing freely for those with strong credit scores and stable incomes, issuers have been tightening lending standards lately, possibly in response to worries about elevated delinquency rates, a spike in layoffs and a possible recession. These recent rate hikes could be evidence of that skittishness.

The Blue Cash Everyday® Card from American Express, the Amex EveryDay® Credit Card and the Amex® EveryDay Preferred Credit Card all charge a variable purchase APR of 20.24 percent to 29.24 percent as of May 7, 2025, up from 18.24 to 29.24 percent in early April. In early February, rates increased on the EveryDay and the EveryDay Preferred as well (the EveryDay card’s upper and lower rate bounds both went up by a point, while the EveryDay Preferred’s lower bound rose by one percentage point and the upper bound by two points). It’s unusual to see two rate escalations on the same cards within a three-month span in the absence of any Fed rate changes.

Two weeks ago, the variable APR on the Chase Sapphire Preferred® Card changed from Prime + 12.99 to 19.99 percent to Prime + 12.49 to 20.74 percent. In that case, it got more expensive for less creditworthy borrowers but a bit cheaper for the most creditworthy tier.

These changes are pretty small in the grand scheme of things. Still, it’s a good reminder that rates on individual products can change even when the macro rate climate is calm — especially on new customer offers. 

Tariffs are just one White House policy that could impact Fed policy this year. U.S. central bankers are also keeping a close on a tax bill moving through Congress and whether President Donald Trump’s administration will make his 2017 Tax Cuts And Jobs Act permanent.

Here’s the latest on what we know:

• Republicans are working on a bill that would extend major provisions of the 2017 Tax Cuts and Jobs Act. These provisions, which include a bigger child tax credit and lower income tax rates, are set to expire at the end of 2025. (Read more about the expiration of the TCJA.)
• The final bill likely will include new tax breaks, promised by President Donald Trump during his campaign, such as eliminating taxes on tips, overtime and Social Security benefits. Learn more about Trump’s tax plans and what to expect for your taxes in 2025 and beyond.
• The bill might modify the state and local tax (SALT) deduction, which allows taxpayers to deduct property taxes and state income taxes. But it’s unclear at this point what changes to the SALT deduction might end up in the final bill. 
• There’s a good chance that many, if not all, of the TCJA’s expiring provisions will be extended under a Republican-controlled Congress. However, passing the House bill, and then reconciling that bill with the Senate’s version, won’t necessarily be smooth sailing because Republicans aren’t completely aligned on how to pay for these tax cuts. 
• House Speaker Mike Johnson has said he wants a vote on the bill by Memorial Day, although it’s uncertain if lawmakers actually will come to an agreement by that date. After the House passes the bill, it’ll go to the Senate. Trump has said he wants a final bill to pass by July 4.

Fed officials won’t update their Summary of Economic Projections (SEP) this month

At the Fed’s May meeting, consumers and investors looking for clues on when the Fed’s next rate cut could be will have to pay careful attention to Fed Chair Jerome Powell’s post-meeting press conference. That’s because the Federal Open Market Committee (FOMC) will not release an estimate of where they expect their key interest rate — the federal funds rate — to be by the end of this year. 

The last time officials formally updated everyone (in what’s called the “dot plot” from their Summary of Economic Projections, or SEP) was in March. And even then, those estimates have probably grown a little stale because it was before Trump announced his April 2 “Liberation Day” tariffs. 

Still, the median estimate among officials penciled in two rate cuts for 2025, far below what the markets are now expecting, according to CME Group’s FedWatch tool.  As of this morning, investors see a near 37% chance of three quarter-point rate cuts (or 0.75 percentage point total) this year. That would bring the federal funds rate down to a target range of 3.5-3.75 percent, still the highest in over a decade. 

“What’s bad for the economy is good for mortgage rates.”

This idea, shared with me by Melissa Cohn of William Raveis Mortgage, has been playing on repeat in my head recently. While we’ve seen some small drops in mortgage rates this year, could a slowing economy lead to more declines?

It’s likely the Federal Reserve will stay the course today, but keep focus on its dual mandate: inflation and unemployment. While the Fed holds steady, Americans are feeling an economic unsteadiness. Last month’s tariff announcement brought a drastic fall in the 10-year Treasury yield, tugging fixed 30-year mortgage rates down with it, at least temporarily. Since then, rates have rebounded, and currently sit higher than they were leading up to the announcement.

In this will-or-won’t climate, it’s hard to say what lasting impact tariffs will have on the housing market. In the short-term, drops in the 10-year Treasury yield could lead to more opportunities for homebuyers ready to lock their rate. However, if more tariffs are enacted, it could trigger inflation and an economic slowdown, also known as “stagflation” — leaving the Fed in a sticky situation.

Last quarter, the U.S. economy shrank. If you were ever forced (or hey, maybe eager) to take an Economics 101 course, you probably remember that the typical rule-of-thumb for a recession is two consecutive quarters of negative growth. So is a downturn where we’re headed? 

It’s hard to say. Economists in our latest quarterly survey put the odds of a recession at 36%. Some, though, put the odds as high as 80%. The dealbreaker seems to be Trump’s trade policy. Uncertainty is never pro-growth, and businesses who are unsure about the magnitude and size of any import taxes might simply hold off on hiring or expansions until they know more. Economists I’ve been talking to also say they’d lower their recession odds if tariffs were taken off the table. 

Yet, most also assume that the full suite of Trump’s “Liberation Day” tariffs won’t come to fruition. The odds of a downturn could increase if they do end up happening. 

But here’s why I often have a bone to pick with the term “recession” and the definitions we use to describe whether we’re in one. For starters, only the National Bureau of Economic Research’s Business Cycle Dating Committee can declare whether we’re in a downturn. They typically want all of the data points — not just GDP, but the job market, consumer spending, hiring, industrial production and more — to be showing signs of a slowdown. And the U.S. economy has contracted for two consecutive quarters without technically being in a recession before. 

It can also invalidate Americans’ struggles and experiences. If you yourself lost your job, you can still feel like the economy is in a recession, even if it technically isn’t. And if the economy is still on solid footing, but you feel like the dollars in your wallet aren’t going as far as they used to thanks to inflation, you might feel like you’ve experienced a loss of income. 

Fed may hold rates steady, but tariff turmoil still rattles investors

For investors, a Fed on hold will likely do little to change the landscape — at least in the short term. It’s not the cost of borrowing that’s the problem — it’s the unease on Wall Street and the policy whiplash from Washington.

Since March, markets have been tossed by President Trump’s broad and aggressive tariff policy, sending the S&P 500 and Nasdaq to their worst quarterly performances since 2022. 

Markets rebounded significantly leading up to the May Fed meeting, but business leaders and investors alike are still scrambling to make sense of how to price in risk when trade policy shifts daily. 

So far in 2025, there’s been no rate cut.

“The Fed has indicated they are in no hurry to change interest rates until there is more definitive data on inflation and the overall economy,” says Greg McBride, chief financial analyst at Bankrate. 

Earnings season has added mixed signals for investors. In the two weeks leading up to the Fed meeting, companies across industries released quarterly results. Some, like GM and JetBlue, withdrew their full-year profit guidance, citing unclear economic conditions. Others, like Netflix and Microsoft, rallied on strong profits. 

A June rate cut isn’t off the table. But for now, a Fed on hold offers little reassurance to investors. 

“Investors can’t expect the Fed to ride to the rescue so stock prices will fluctuate based on the outlook for the economy, business and earnings – not interest rates,” says McBride.

If the Fed can’t set interest rates independently, experts say consumers might have to brace for higher inflation and interest rates

I recently caught up with Rodney Ramcharan. He’s a professor of finance at the University of Southern California’s Marshall School of Business, and he formerly led a section of the Fed’s Division of Research and Statistics that specialized in studying financial stability. 

He says the president’s recent comments about Fed policy are “scary” — because it can have major consequences for investors, consumers and the economy. His primary fear? That the Fed might cut rates even more slowly to prove that it’s independent. Another concern is that Fed officials might have to go the extra mile to prove that they didn’t cave to the whims of the president, if they do eventually end up cutting rates. 

If the U.S. central bank is politicized, I recently wrote about the two main ways it could impact your money:

• Inflation can increase: Research suggests that independent central banks have lower inflation rates over time. Elected officials throughout history have prioritized short-term objectives — like getting reelected — at the expense of inflation down the road. 
• Interest rates can rise: Investors have less confidence that elected officials will be like that guy who takes away the punchbowl at the party right when the fun is getting started (AKA, will hike rates to slow the economy). They could start to demand greater compensation for holding government debt, which would cause Treasury yields to rise. Consequently, borrowing money would become more expensive for the government — and everyone else. 

Here’s how Fed independence could impact your money

Congress gave the Fed authority to raise, lower or maintain interest rates without political interference.

Read more

Trump has repeatedly called on the Fed to lower interest rates, but his tariffs are keeping them on hold

As if the Fed’s decision today couldn’t get any more complicated, policymakers — particularly Fed Chair Jerome Powell — are going to have to toe a careful line when they explain their decision to keep rates high. President Donald Trump has been lambasting Fed officials for not cutting interest rates, moves he says could help make his trade war more successful and prevent the economy from entering a recession. 

“He’s a total stiff,” Trump said in an interview on NBC’s “Meet The Press” from Sunday. “He should lower them. And I wish the people that are on that board would get him to lower [rates] because we are at a perfect time. It’s already late.”

Experts tell me Trump has a point. Tariffs could cause a recession, and so could high rates, economists say. Pricey financing costs, meanwhile, are also eating up corporations’ budgets, making it harder for them to afford reshoring back to the U.S, Wendy Schiller, a political science professor at Brown University, recently told me. 

But when the Fed was created in 1913, it was charged with maintaining price stability, not with carrying out the White House’s economic agenda. Officials don’t want to stimulate demand if tariffs are already causing supply shocks and pushing up prices (sort of like what happened during the pandemic). 

Even so, Trump has accused officials of “playing politics.” (Last year, policymakers cut interest rates three times, in September, November and December). And it might be hard for Powell & Co. to prove that they aren’t, particularly if it’s implied that Trump’s policies are the reason they aren’t cutting rates.

“Whatever they do, it will be interpreted politically,” Vincent Reinhart, chief economist at BNY Investments, who spent more than two decades at the Fed, told me. “The outlook for the economy is the outlook for the political economy, and your economic forecast depends on actions by political authorities.”

Fearing higher inflation from tariffs, the FOMC is likely to keep rate cuts on hold

Recession fears are rising, consumer sentiment is plummeting, and markets over the past few weeks have been bumpy. You might be wondering: Why is everyone saying the Fed won’t cut interest rates today? 

I’m Sarah Foster, Bankrate’s U.S. economy and Federal Reserve reporter. I’ve been covering the U.S. central bank since 2018, and I’ve covered rate cuts, rate hikes, emergency meetings, big market bailouts and everything in between. Nothing compares to the current predicament the Fed finds itself in. 

Simply put, the Fed isn’t expected to cut interest rates today because its hands are tied. Just as investors, consumers, corporations and even economists were shocked by President Donald Trump’s “Liberation Day” tariffs from April 2, so, too, were Fed officials. In the weeks leading up to their May rate-setting meeting, policymakers said those “reciprocal” tariffs were bigger than anyone had expected — meaning their impacts on the economy could be greater than originally estimated, too. Some economists expect inflation to heat back up to 4-4.5%, almost twice its current 2.4% level, if all of those tariffs go into effect after a 90-day pause.  

As such, Fed officials are inclined to stick to the sidelines. If they cut interest rates, the fear is that they might fuel even more inflation, making the cycle more difficult to break. As officials learned during the 1980s, the quicker they can bring prices back in check, the better it is for the economy — and for everyday people — over the long term. 

For right now, the decision is an easy one. The latest data shows that the job market has slowed but is still chugging along, with employers creating more than half a million jobs so far this year, and the unemployment rate holding around the Fed’s estimates of “full employment.” 

But that might not last forever. The economy contracted in the first three months of the year, and Americans are front-loading their purchases of cars, appliances, electronics and more in an attempt to get ahead of tariff-driven price hikes. If people buy more things today, it takes away from future spending — the powerhouse of U.S. economic growth. Meanwhile, businesses whipsawed by an erratic tariff rollout are putting hiring or investment decisions on pause, which could chill the economy even more. 

If the economy enters a recession at a time when inflation is also rising, the Fed could be put in a difficult situation: choosing between saving the job market versus keeping prices in check. And of course, there’s another unknown: Whether the Trump administration reaches any trade deals that might keep those “reciprocal” tariffs off the table completely. 

For now, the Fed looks stuck in “wait-and-see” mode until it gets more clarity. 

Trump wants lower interest rates, but for now, his tariffs are keeping the Fed on hold

Here’s what to expect from the Fed’s interest rate announcement today.

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