Fed holds rates steady amid tariff issues, leaving logistics sector in holding pattern

As was widely expected, the Federal Reserve said yesterday that it will not make any changes to its federal funds rate, which comes from the Federal Reserve Federal Open Market Committee (FOMC), announcing that it again decided to leave the target range for the federal funds rate at 4.25%-to-4.5%.

This announcement was not unexpected, as it marks the fourth time in 2025 that rates have remained unchanged, at 4.25%-to-4.5%. This was preceded by three consecutive rate cuts in 2024, including: a reduction to 4.75%-to-4.5% in September; a reduction from 4.50%-to-4.75% in November; and a reduction to 4.25%-to-4.50% in December.

While concerns regarding the economy, driven in large part by ongoing tariffs and trade policy, which many industry stakeholders view as increasing supply chain uncertainty on myriad levels, bringing inflation down remains a key objective for the Federal Reserve, at a time when much remains in flux, for various reasons.

The Fed explained that while swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace, noting how the unemployment rate remains low, coupled with solid labor market conditions, while adding that inflation remains somewhat elevated.

“The [FOMC] seeks to achieve maximum employment and inflation at the rate of 2% over the long run,” said the Fed. “Uncertainty about the economic outlook has diminished but remains elevated.”

Federal Reserve Chairman Jay Powell said that in leaving the rates unchanged, the Fed believes the current stance of its monetary policy leaves it well positioned to respond in a timely way to potential economic developments.

What’s more, Powell explained that the impact of tariffs and trade policy concerns continue to impact the economy.

“Surveys of households and businesses…reflect a decline in sentiment over recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns,” he said. “It remains to be seen how these developments might affect future spending and investment. In our Summary of Economic Projections, the median participant projects GDP to rise 1.4% this year and 1.6% next year, somewhat slower than projected in March.

Addressing various aspects of the economy, Powell outlined the following:

• payroll gains have averaged 135,00 per month over the past three months;
• the 4.2% unemployment rate remains low and has stayed in a narrow range for the past year;
• wage growth has continued to moderate while still outpacing inflation;
• the median projection for the unemployment rate in the SEP (Summary of Economic Projections) is 4.5% at the end of 2025;
• Inflation remains somewhat elevated relative to the Fed’s 2% longer-run goal, and estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.3% over the 12 months ending in May; and
• the median projection in the SEP for total PCE inflation this year is 3%, falling to 2.4% in 2026 and 2.1% in 2027

What’s more, Powell noted that changes to trade, immigration, fiscal, and regulatory policies continue to evolve, with the economic effects uncertain.

“The effects of tariffs will depend, among other things, on their ultimate level,” he said. “Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity. The effects on inflation could be short-lived—reflecting a one-time shift in the price level. It is also possible that that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.”

Keith Prather, Armada Corporate Intelligence Managing Director, told LM that with the Fed’s announcement matching expectations, with rates unchanged, and Powell’s comments basically outlining stagflation—the pairing of higher inflation rates and slower growth—with 2025 GDP pegged at 1.4%, which he said suggests that the second half of the year is going to be much weaker than the first half if second quarter GDP comes in at 2% or higher, with it currently tracking at 3.4%.

“They only forecasted two quarter point cuts this year and perhaps one next year and one in 2027,” said Prather. “That's pretty dismal and signals throttling by the Fed. Unemployment is expected to inch up to 4.5% (which is reasonable when we think about AI job replacement trends) but inflation goes to 3%. Since he has a dismal growth forecast, inflation is not likely being driven by growth, the Fed believes its tariffs and perhaps some oil shock risk in the mix. The Fed's estimate on the economy is much weaker than the administration's (and even some other private estimates). It's a bit of a head scratcher when you look at the details in the report.” 

As previously reported, a recently-conducted Logistics Management reader survey of more than 100 freight transportation, logistics, and supply chain stakeholders found that 63% of respondents felt a rate cut would help, with 37% saying it would not.

Reasons cited for the former included: access to cheaper capital helping the sector and various businesses; reducing interest payments and improving cash flow; spurring housing sector growth; and improving consumer demand, among others. And reasons for the latter included: labor issues not subject to interest rates and deflation, among others.

If there are declines in inflation in the coming months, which is far from a certainty, it could create a situation in which the Federal Reserve begins to feel like it can continue with rate cuts. Should the unemployment rate see further improvement and a trade deal, specifically between the U.S. and China, were to be made, it could potentially lead to a series of 0.25% rate cuts. But, to be clear, that is not where things stand, at the moment.