The Federal Reserve of U.S. maintained its benchmark interest rate within the 4.25%-4.50% range on Wednesday, emphasizing heightened economic uncertainty as policymakers assess the impact of import tariffs introduced by the Trump administration.
Federal Reserve Chair Jerome Powell stated that these policies have contributed to slower economic growth and temporary inflationary pressures, reinforcing the central bank’s cautious stance on further rate adjustments.
President Donald Trump responded to the Fed’s decision with criticism, urging policymakers to cut rates as tariffs start influencing the economy. In a post on Truth Social, Trump stated, “The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing.”
Despite the administration’s stance, Powell underscored the complexity of the current economic landscape, describing the level of uncertainty as “unusually elevated.” While the Fed continues to anticipate two quarter-percentage-point rate cuts by year-end, Powell highlighted that slower growth is offsetting inflationary pressures, making it difficult to predict the long-term effects of policy changes.
The latest Fed projections indicate inflation rising to 2.7% by the end of the year, up from the 2.5% forecast in December. Economic growth expectations have been revised downward to 1.7% from 2.1%, with a slightly higher unemployment rate projected.
Powell acknowledged that tariffs—particularly those set to take effect in April on imports from Mexico and Canada—pose an external inflationary risk.
Financial markets reacted to the Fed’s decision with major U.S. stock indices closing higher, while the dollar pared some of its earlier gains and U.S. Treasury yields softened. Traders priced in a 62% likelihood of the Fed implementing its first rate cut of the year in June, up from 57% before the policy statement was released.
In addition to maintaining its rate stance, the Fed announced plans to slow the ongoing drawdown of its $6.81 trillion balance sheet, a move known as quantitative tightening. Fed Governor Chris Waller was the sole dissenter in Wednesday’s decision, citing concerns over the balance sheet policy shift.
Powell reaffirmed that while the Fed is closely monitoring inflation trends and labor market conditions, it will remain cautious in making policy adjustments until there is greater clarity on the economy’s trajectory.
