In this video, Vanessa Welch, Empower vice president for financial insights, and Marta Norton, Empower chief investment strategist, discuss the Federal Reserve holding interest rates steady in May and what that could mean for tariffs and the economic environment overall. Here is a transcript:

Marta Norton: That would suggest that the market is looking at growth concerns as more material than concerns around inflation.

Vanessa Welch: So the Federal Reserve just wrapped up its meeting, and as expected they are keeping rates unchanged. Marta, I'm curious, what does the wait-and-see approach from the Fed say about the state of the economy right now?

Norton: You saw that all over the Fed meeting. This is a wait-and-see Fed meeting. Powell really highlighted the strength of the economy, the strength of the labor market, and what he said is this is not a situation in which to be preemptive. He really needs — the Fed really needs more data to make determinations on how to adjust policy from here.

Welch: There's a lot of talk about whether the Fed's being too cautious or smartly patient. Do you think that this pause is helping or hurting confidence when it comes to business owners and investors?

Norton: Well, of course, we're in a period of great uncertainty, so it's no surprise that the Fed is also highlighting great economic uncertainty as it begins to make decisions for policy.

Acting too quickly could cause investors to wonder about the Fed's commitment to its inflation mandate. So that means every data print, every Fed meeting looms especially large in this period.

Welch: There's also been a lot of talk about the Fed's independence, especially with the political pressure in the headlines these days. How important, Marta, is the Fed's credibility for market stability, and what could happen if that trust starts to erode?

Norton: Okay. So, of course, it's President Trump's comments around his frustration with Powell that bring that independence into the front of mind for investors. Independence goes to credibility.

If there is some concern that investors have that the Federal Reserve is making choices on policy that are in the best short-term interest for political purposes, but not in the best interest for the economy over the long run — that really undercuts credibility, and you could start to see yields move higher. You could start to see inflation expectations becoming unhinged a bit. I would argue we're still very far afield from that today.

Welch: Let's talk about the future. If we could look forward a little bit, if the Fed does start to lower interest rates, what could that mean for investors? Are there opportunities or risks that people should be thinking about right now?

Norton: Okay. So our expectation in this environment is that growth will slow, particularly if tariffs at these excessive levels remain in place for longer. That would mean lower rates over the course of the year. The market is pricing in three cuts over the course of 2025. That would suggest that the market is looking at growth concerns as more material than concerns around inflation. And, of course, that aligns with our base case, but — and here's the implication for investors — I think we should all have a wider confidence — or better said — acknowledge a wider range of future outcomes from here in this uncertain environment.

Welch: Great perspective, Marta. So while today's Fed decision keeps things steady, the real story is what's going to be coming our way next, right? We know that the Consumer Price Index report will be released next Tuesday, and we'll be back with Marta's analysis then. Take care.