As Trump’s tariff policies play out, the US Fed takes a longer pause | Current Affairs | Vision IAS

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As Trump’s tariff policies play out, the US Fed takes a longer pause

2 min read

Global Central Bank Divergence and US Federal Reserve Actions

Central banks worldwide are exhibiting divergent monetary actions compared to the US Federal Reserve.

Actions by Other Central Banks

  • The European Central Bank cut interest rates in April, citing a deteriorating growth outlook due to rising trade tensions.
  • The Reserve Bank of India also lowered interest rates around the same time.
  • The Bank of England reduced its interest rates, following the trend of other central banks.

US Federal Reserve's Position

  • The US Federal Reserve kept its rates unchanged in May for the third consecutive time, maintaining the federal funds rate at 4.25-4.5%.
  • Fed Chairman Jerome Powell noted increased risks of unemployment and inflation.
  • The US GDP contracted by 0.3% in the first quarter of 2025, with imports rising by 41.3% as consumers and firms anticipated tariffs.

Inflation and Labor Market

  • Inflation remained stable between 2.5% and 3%, with the personal consumption expenditures price index at 2.3% in March.
  • The labor market remains strong, with non-farm payrolls rising by 177,000 in April and unemployment steady at 4.2%.

Impact of Tariffs and Trade Deals

  • US tariffs, particularly those announced by President Donald Trump, are larger than anticipated, potentially increasing inflation and unemployment.
  • The economy's future depends on the resolution of trade deals and tariff adjustments.
  • Trump announced a trade deal with the UK and ongoing negotiations for other deals, but remains firm on tariffs with China ahead of upcoming talks.
  • Tags :
  • Central Bank Divergence
  • US Federal Reserve
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