Archive May 7, 2025

The US Federal Reserve has kept interest rates unchanged, brushing off President Donald Trump’s demands to lower borrowing costs, and said that the risks of higher unemployment and higher inflation have risen.

The Central Bank kept its benchmark rate at 4.25 percent to 4.5 percent, where it has been since December, after cutting it three times in a row at the end of last year. Its vote to hold rates steady was unanimous.

In a statement, the Fed said that “uncertainty about the economic outlook has increased further”, as it justified keeping rates consistent despite pressure from the White House.

Many economists and Wall Street investors still expect the Fed will reduce rates two or three times this year, but the sweeping tariffs imposed by Trump&nbsp, have injected a tremendous&nbsp, amount of uncertainty into the US economy&nbsp, and the Fed’s policies.

It is unusual for the Fed to say that the risk of both prices and unemployment have increased. But economists say that is the threat created by Trump’s sweeping tariffs. The import taxes could both lift inflation by making imported parts and finished goods more expensive, while also raising unemployment by causing companies to cut jobs as their costs rise.

The economy overall has “continued to expand at a solid pace”, the Fed said in a policy statement, attributing a drop in first-quarter output to record imports as businesses and households rushed to front-run new import taxes.

The Fed said that it was also “strongly committed to supporting maximum employment and returning inflation to its 2 percent objective”.

The Fed said that one of the driving factors behind its decision is the state of the labour market as well as “inflation pressures and inflation expectations, and financial and international developments”.

The US Labor Department in the jobs report published last week showed 177, 000 jobs were added to the US economy consistent with growth levels over the last 12 months. The report, however, was on employment before “liberation day”, when Trump announced his sweeping tariff policy, which has since driven global economic uncertainty. The ADP jobs report, which is a more immediate metric, showed job growth at 62, 000.

Fed Chair Jerome Powell said in a news conference after the interest rate decision that leaving rates unchanged keeps the central bank in a good position to respond.

“For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance”, Powell told reporters. “It’s still a healthy economy, albeit one that is shrouded in some very downbeat sentiment on the part of people and businesses”, he added.

“The Fed statement was a statement of the obvious. They gave roughly equal airtime to the threats to growth and inflation, so that tells us we need to wait and see how the data shake out between now and the June meeting before deciding whether they’re going to prioritise keeping inflation expectations contained or to address any hit to growth”, said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

The new prices took effect on vehicles produced on May 2 or later, according to the news agency Reuters, which first reported the story on Wednesday.

Prices on the Mustang Mach-E electric SUV, Maverick pick-up — one of its most affordable and popular vehicles— and Bronco Sport will increase by as much as $2, 000 on some models, according to a notice sent to dealers, which was reviewed by Reuters. &nbsp, A Ford spokesperson said the cars with the raised price tag would arrive at dealer lots in late June.

Ford said the trade war would add about $2.5bn in costs for 2025, but it expects to reduce that exposure by about $1bn. General Motors said last week that tariffs were projected to cost it between $4bn and $5bn following the imposition of hefty levies on foreign imports of automobiles, but it expected to offset that by at least 30 percent.

Trump’s tariffs have unleashed weeks of uncertainty across the auto sector, as major carmakers in the United States and Europe have pulled forecasts, shifted production and caused companies to idle plants.

Following weeks of pushback from the auto industry, Trump softened his tariffs on foreign auto parts imports to give carmakers credits for what is produced in the US and to avoid double-tariffs on raw materials used in production. However, the White House has not rescinded a 25-percent tariff on the 8 million vehicles the US imports annually.

Ford is in a better position to weather tariffs than some of its competitors because of its strong US manufacturing base. The Dearborn, Michigan, automaker assembles 79 percent of its US-sold vehicles domestically, compared with GM’s 53 percent, according to an analyst note from Barclays.

Pricing pressure

Ford and GM also face significant levies on imports from China and South Korea, respectively. GM estimated that the costs on its Korean imports totalled about $2bn, while Ford declined to specify the expenses around importing vehicles from China.

Automakers that rely on exports to the US are facing increased pricing pressure. A dozen major carmakers, including Toyota and GM, import at least 40 percent of the vehicles they sell in the US, with some, such as Volkswagen and Hyundai Motor, importing more than 60 percent, according to 2024 data from S&amp, P Global Mobility.

Before Ford’s move, most carmakers had not taken the step of boosting prices, but had warned that it was on the way. Porsche said it would have to boost its selling cost if tariffs remained in place, while US Volkswagen’s Audi brand also suggested potential price increases, without providing any details.

At a joint news conference with French President Emmanuel Macron in Paris on Wednesday, Merz outlined a joint vision for deeper European integration, calling for a “new push for Europe” grounded in closer Franco-German cooperation.

“We will only be able to meet these challenges if France and Germany stand even more closely together than in the past”, Merz said. “That is why Emmanuel Macron and I have agreed on a new Franco-German push for Europe”.

Among the initiatives discussed was the strengthening of the Franco-German Defence and Security Council, Merz said.

“We want to better coordinate our support for Ukraine within this framework, align our national defence planning and procurement projects even more closely, and also find new answers to strategic questions of security and defence policy”, Merz added.

The meeting comes at a time of mounting concern across Europe about the reliability of US security guarantees amid Russia’s war in Ukraine.

In a joint op-ed published in Le Figaro, Merz and Macron affirmed their shared commitment to “contribute to a just and lasting peace]in Ukraine], with the support of the United States on security, and strong security guarantees”.

Macron said the two countries would fast-track new defence capabilities.

The visit to Paris follows a rocky start to Merz’s chancellorship after he needed an unprecedented two rounds of voting in the Bundestag to be elected Chancellor, suggesting underlying divisions within the new governing coalition between his centre-right CDU/CSU alliance and the centre-left Social Democrats (SPD).

But in a potential shift towards a more unified German foreign policy, Merz now presides over a government in which both the chancellery and foreign ministry are held by the same party for the first time in years.

He has also pledged to establish a national security council within the chancellery, aimed at improving coordination across foreign, development, and defence policy.