The Fed cautions against higher unemployment and higher inflation.
FOMC Statement
Here is the Federal Reserve FOMC Statement for the May 6-7 Meeting.
Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee 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.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
The Wall Street Journal comments
The policy changes pose a dilemma for the Fed, which has to decide whether to focus more on the potential for inflation to go up or more on the risk of rising unemployment.
“They’re in a bad situation,” said William English, a former senior Fed adviser. “If I were there, I would be suggesting that they stay put for now.”
Trump backed off an implied threat to sack Fed Chair Jerome Powell last month, but continued hectoring the central bank leader to reduce rates. “We have a stubborn Fed,” Trump said in a television interview aired Sunday. “He should lower them. And at some point, he will.”
Because the economy has just been through a period of high inflation, assuming that consumers and businesses will expect inflation to decline after an initial increase “is a bad risk for the central bank to take,” said Adam Posen, president of the Peterson Institute for International Economics.
“It is very ironic and, frankly, self-contradictory for people in or close to the administration who were critical about the Fed being too inflationary to also argue that the tariff shock is not going to have any effect on inflation,” Posen said. “It’s one or the other.”
Others fear that by holding rates steady as the economy slows, the Fed is setting up to keep rates unnecessarily high, risking a sharper downturn.
“The longer they’re on hold, the more they’re passively tightening,” said George Goncalves, head of U.S. macro strategy at MUFG, Japan’s largest bank. Waiting until July or September to cut rates raises the prospect the Fed will have to make larger, half-percentage-point cuts. “That’s just too long of a wait. You might lose that chance of really catching the economy,” he said.
No One Knows What Trump Will Do
No one know what Trump will do with tariffs, what Congress will do with the budget, or how the markets will react to whatever Trump and Congress do, so a decision to do nothing makes sense.
“The costs of waiting are low,” said Powell in the press conference.
We could easily see a significant bout of stagflation or a big deflationary crash. We could also see the first followed by the second.
I am not at all a Fed apologist, but assuming there is a Fed, hold was the right call.
Gold Soars to Another New High, What’s the Message?
Yesterday, I noted Gold Soars to Another New High, What’s the Message?
There are three messages. Do you see them?
Click the above link for three messages.
If you think we are headed for a currency crisis, then you are thinking correctly.
Don’t ask me when, because no one knows. But the message is unmistakable.
The fed should already be lowering rates. They were late on inflation and now they are slow on the slow down. What’s the deal with the stable firm crap in the midst of the wildest situation we’ve seen in a while? I believe short term rates would be falling if the fed wasn’t keeping em up. By the time the data reflects issues clearly, it’ll be too late just like with inflation. The better strategy would be to lower rates now and if you realize you were wrong raise em back up. These guys are too stubborn trying to appear stable and knowing, but they should be more responsive than they have ever been. Oh well, just my opinion. Some think they just don’t want to bail Trump out. That’s called basing your decision on politics. Is our fed political?
Powell has to defend the dollar. Holders of dollars don’t want their reserves falling in value.
Powell was articulate and on point which calmed markets. Both gold and the VIX responded clearly that Powell can react to whatever trump and his idiots throw at them. I don’t buy it and most of the readers here are at least suspect that we are headed directly into another trump induced crisis.
Plenty of Americans, and the world (on the other hand) have time to weigh in on this, and trump did not help by saying he will not lower Chinas 145% tariff. He did help by conceding on AI chip exports. Of course trump is making concessions and China is watching him cave like a wet noodle.
Trump really is the dumbest, most arrogant douche bag of a president EVER!
Tied with Clinton.
One thing is for certain,
The Federal Government can not sustain the current debt servicing at 4.25%
Zero or negative rates is the only remedy.
trump is a schizo. the fed cannot plan for that. the end.
Stock market and bond market will tell Trump what to do.
Trump is mentally ill, predicting his action/inaction is a fools game.
bingo. his only goal in his entire life has to be on center stage with the bright lights and eyeballs. anything beyond that is wasted trying to analyze this schizo actor. he’s very much like hitler in that regard. mastered the art of propaganda and lying but the center stage is his. chaplin knew hitler was the greatest actor of his time. same goes for trump. the rest is eyewash.
Even aside from the tariffs, it’s hard to imagine inflation being constrained with federal spending raging out of control – most notably Trump’s proposal to spend over one thousand billion dollars on “defense”.
Medicaid alone was around $600 billion from the federal government and $300 billion from states for 2024.
But yes, they could reform the Pentagon. Cut back in areas like armored vehicles or tanks to spend more on strategic forces and weapons like nuclear submarines and hypersonic missiles.
Secretary Hegseth wants to reduce costs, while lawmakers including Senator Reed from Rhode Island are not as enthusiastic about this.
the states coffers should not be included. so medicaide is for us residents here in the states. the department of war which should include VA, is mostly to rule the 7 seas and guard the world for the likes of saudi princelings and shelf space for coca cola. the choices will have to be made going forward. the empire is going bust. we have homelessness and suicides and hs grads who cannot read or do maths. all empires come to this point.
Powell has to know the US economy is on a recession trajectory. He may try to protect his legacy by pinning the recession on Trump.
I agree. Trump should fire him.
Not clear Trump can fire him.
Trump should resign declaring he has been the greatest of the great with nothing more to accomplish. In his sick mind it’s all true.
nah. the schizo wants to go down as one of the greats. be a potus who rules over a world war and maybe civil war or perhaps both.
Powell does not need to pin a recession on Trump. Trump is wearing that pin already.
IMHO the world will sit back and generally NOT do any deals, then let Trump deal w expensive and empty shelves. I think he’s mistaken on just how bad that will be.
Everyone will just let him face that.
They can start negotiations but it takes 2-5 years to negotiate a trade deal.
So far Trump has exempted car parts, computers, cell phones and electronics. Coffee makers that went for $15 will be probably at least $25 and at most $30.
Home goods, toys, and kitchen appliances come mainly from China. I wonder what else as far will be empty shelves.
About 15% of Home Depot merchandise is from China.
At least we aren’t reliving the Eighties and Reagan’s tightening against inflation.
That was the legendary P Volker!
You need to adjust your odometer back a touch.
Too low!
Transitory!
The kakistocracy administration is destroying the u.s.
Gundlach on CNBC: Gold heading to $4k, C and B rated bonds showing stress.
Oh my! Welcome to 2007.
The federal response to the 2006-2009 housing collapse is part of why we’re here. Backstopping banks and mortgage backed securities holders was a huge mistake. It opened to door to the overdone Covid response. Hank Paulson should be executed and then dug up and executed again.
burying is too good for some folks like Paulson, Bush crime family and MAGA cult boy.
While China’s central bank cut its lending rate which already was low, while the Chinese government took steps to make borrowing easier. The only way out of the our debt mess which, unbelievably, gets worse over time, is for inflation to run at a higher rate than government bonds pay. Why the Fed wants to have clamp on inflation is baffling. Pretty soon, they’ll be buying US debt like crazy.
They cannot inflate their way out of debt. Government acquires most of its goods and services in the private sector and will have to pay those inflated costs, which will require even more spending even if nothing is added or expanded.
Couple that with COLA for Social Security as well as the upward CPI adjustments to the tax brackets and things will get worse. Then consider big holders of bonds such as banks and insurance companies.
At any rate, doing it the way you suggest would have everyone who wants bonds running for TIPS.
They can do it. The Fed would have to print a lot of money and buy most of the Treasury securities in existence. The US did that after WWII. It worked. Inflation rate has to exceed bond yields.
ummm, Matt, after WWII the USA was not racking up $1 Trillion in new debt every 75 days, nor did it have the enormous mountain of debt that it has now., nor was it in a situation wher foreigners were fleeing American investments and currency because they didn’t want to take the risk of being in it anymore. Back then, people actually liked the USA.
Other than these minor issues, your plan would work.
“Why the Fed wants to have clamp on inflation is baffling.”
“The Federal Reserve’s mandate, often called the “dual mandate,” is to achieve maximum employment and stable prices. Congress has assigned the Fed this responsibility to conduct the nation’s monetary policy and support these goals. This means the Fed aims to keep unemployment as low as possible while maintaining a stable inflation rate, generally aiming for an annual inflation rate of 2% over the longer run, as measured by the Personal Consumption Expenditures (PCE) price index.”
How “stable prices” translate to a 2% inflation rate puzzles me. Wouldn’t “stable prices” be 0% inflation, although that might be impossible that should be the goal.
Journalists are idiots. You said things are uncertain, but can’t you give us a little bit of certainty?
Well, death and taxes.
They are trained to be idiots, bully, bias, distribute fake and propaganda news.
The sun rises in the east and sets in the west. The sky is blue. Trump is stupid.
What more certainty do you need?
You’re asking Mish to predict the future for you.
Why Didn’t Tariffs Push up the U.S. Dollar?Tariffs were supposed to push the dollar up. What happened?
https://www.cfr.org/blog/why-didnt-tariffs-push-us-dollar
Because the world is fleeing American investments. Who wants to be associated with Trump?
If everyone wasn’t selling the US $, it would not have declined almost 10% since Trump took office, a really masive move for a “reserve currency”. The reserve tank turns out to have been filled with the stupid.
Jerry : Yeah, things look good. But tariffs, we have no idea so that’s pretty consistent with uncertainty, so we’re uncertain, so we’ll just sit on our hands, its comfortable, we can look around and then when something happens, we can fall behind the curve as always.
“No One Knows What Trump Will Do”
Yes we do, he will crash the economy bigly. He just said he isn’t open to lowering the China tariffs right before his team is supposedly meeting in Switzerland.
So you think he should have made a concession in a negotiation before even sitting down at the table?
Well, Trump did try to do that to Ukraine against Russia/Putin.
I’m not sure he realizes they are separate countries at this point.
Ukraine will never beat Russia, so how much pointless death should Zelenskyy be allowed to visit upon Ukrainian conscripts?
Until enough are dead that all the beautiful Ukrainian women have no choice but to come here if they want to find men to marry.
Yuliya Levchenko …
In the real world they’ll marry Nigerians in Italy.
To the last Ukrainian, of course. When none are left, the war will be over.
Ukraine may never “beat” Russia but Russia will never “win”. Just like the US in Vietnam, Iraq and Afghanistan, Russia will eventually withdraw and accomplish nothing but losing billions of Rubles and already close to a million casualties. But the war has changed warfare weapons and tactics with the use of drones being very successful.
No, Trump “conceded” to Russia things the Russians hadn’t even asked for, proving to them only that he paid no attention to what they were actually saying. Which is why they rejected his “deal” – because it bore little relation to reality. Then again he does that to everybody, why would the Ukraine file be any different?
Trump will herald the greatest episode of economic incontinence the world has ever seen!
Why Are Elon Musk and DOGE Killing a Program That Works?Direct File is simple and successful. That must be why Musk wants to end it.
https://www.usnews.com/opinion/articles/2025-05-06/tax-file-irs-elon-musk-doge
Musk does things for two reasons:
1) To solve “the global underpopulation crisis”
2) To get rich
I can assure you he is in favor of what is happening for one of these two reasons, but I won’t tell you which one
David Williams, president of the Taxpayers Protection Alliance, which describes itself as a nonpartisan organization that disseminates research and analysis on the government’s effects on the economy, said Direct File was “problematic” from day 1, citing the program’s costs and noting that many people who started the process never finished. According to the IRS 423,450 taxpayers logged into Direct File and 140,803 submitted accepted returns in 2024. “From hidden costs to taxpayer confusion, the program is riddled with issues,” Williams said.
Bury them in paper.
Intuit’s got it’s fingers in here somehow… We are to be TurboTaxed henceforth…
Higher would be better to induce asset deflation needed by young people.
The boomers are not finished with their grand project yet.
yes … but that assumes they don’t currently have any taxable investments.
Young people didn’t vote, and never do. Therefore democracy completely ignores them.
By the time they figure that out, they aren’t young anymore.
Some young people enter university, then become grifters, then enter politics.
Some young people are on the dope too.