The US Federal Reserve opted to maintain interest rates at 4.25%-4.5%, citing concerns over potential inflation and unemployment spikes due to the impact of Trump’s tariffs on imports. President Trump, a proponent of lower borrowing costs, had expressed a desire for rate reductions. The Fed had previously raised rates to combat high inflation triggered by events like the Russia-Ukraine conflict and supply chain disruptions from COVID-19 lockdowns.

Chair Jerome Powell highlighted the uncertainty surrounding the tariffs’ full effects, which have surpassed initial expectations. A temporary halt was placed on additional taxes imposed by Trump, but tensions escalated with China as both countries escalated tariffs. Powell warned that sustained tariff increases could lead to inflation spikes, economic slowdowns, and increased job losses.

Consumer and business sentiment declined due to economic uncertainty, especially related to trade policies. Despite Trump appointing Powell to the Fed chair, tensions between them have been evident, with Trump even considering Powell’s removal. However, markets reacted positively when Trump ruled out such action in April.

Meanwhile, the Bank of England is expected to reduce interest rates, with projections indicating a potential drop to 3.5% by year-end. These central bank decisions reflect the global economic landscape shaped by trade tensions and tariff disputes, underscoring the interconnectedness of international trade policies and financial markets.