US Fed holds rates steady at 4.25–4.50% — What are economists saying?

The US Federal Reserve has decided to keep interest rates unchanged at 4.25 to 4.50 per cent, maintaining a cautious stance as risks of both rising inflation and increasing unemployment grow. The decision, taken at the latest Federal Open Market Committee (FOMC) meeting, comes even as the US economy shows signs of solid growth and a stable job market. The Fed emphasised it will continue to monitor incoming economic data before deciding on its next move.

Here’s how leading economists are interpreting the Fed’s latest pause:

Madhavi Arora, Lead Economist, Emkay Global Financial Services
“The Fed remained in wait-and-see mode yesterday with rates on hold at 4.25–4.5 per cent, frozen by what it described as increasing but balanced risks of higher unemployment and higher inflation,” said Arora. “It reiterated that policy is ‘well positioned’ to wait for further clarity.”

She added that the Fed appears to be looking past the first-quarter GDP contraction, describing growth as “solid” at the start of the year.

“Powell did not provide much added colour beyond underscoring the balanced but increasing risks and the need to remain data dependent. He referenced ‘waiting’ over 20 times,” she noted.

Arora also highlighted Powell’s subtle tilt toward controlling inflation over employment, quoting his remark: “Without price stability we could not achieve the long periods of stronger labor market conditions.”

“This is neither a hawkish nor a dovish change, but an acknowledgment of stagflationary risks stemming from trade policy,” she observed.

She believes the Fed may remain on hold until clear signs of weakening in the labour market emerge, which could delay any further policy easing to September. “Powell’s tone made it clear that staying on hold was an easy call, raising the bar for action as soon as next month,” she said, adding that the market is still pricing in three 25 basis point cuts in 2025.

On the global front
Arora noted that while the Fed faces supply-side inflation pressures due to tariffs, central banks in Europe and Asia are leaning more decisively toward rate cuts.

“Among G-3, the ECB is at the front of this move and will diverge from the Fed by easing this quarter. China, on the other hand, continues its easing bias,” she explained.

This global shift allows emerging market central banks, including the RBI, more room to manoeuvre on policy rates.

“We maintain that the RBI’s terminal rate could settle at 5.25 per cent (+/-25bps) in this cycle, depending on the global slowdown,” Arora said, adding that policy focus on maintaining liquidity in surplus could act as a de facto rate cut in India.

“India has outperformed in sovereign debt markets this year, with 10-year yields easing around 44bps—much better than US Treasuries or German Bunds,” she pointed out.