Economists predict that rising unemployment will be the catalyst for the Fed to eventually start cutting interest rates once more.
The Fed has remained inactive since January, maintaining its benchmark lending rate at about 4.4%. In recent comments, officials have stated that before contemplating any rate decreases, they want to see the impact of President Donald Trump’s major policy initiatives, notably those pertaining to tariffs, on the US economy.
Renewed tensions in the Middle East compound the uncertainty that has paralysed the central bank. At 2 p.m. ET on Wednesday, officials are expected to announce the end of their two-day policy meeting, continuing their strategy of being on hold.
However, once Trump’s tariffs start to make consumers cut back on their spending, the economy may soon falter, leading to more unemployment as business earnings suffer. The Fed, which is in charge of maintaining the labour market’s health, would then get the signal to begin reducing interest rates.
According to fresh economic estimates, Fed officials may lower interest rates at least once this year, and experts say it will probably be due to negative news.
Jay Bryson, senior economist at Wells Fargo, told CNN that the Fed would likely begin lowering interest rates in the second half of the year as the tariffs begin to slow GDP and the unemployment rate rises.
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