The Federal Reserve decided Wednesday to keep interest rates steady as mounting concerns over slowing economic growth and rising inflation prompted the central bank to maintain its cautious, wait-and-see stance amid ongoing uncertainty over the Trump administration’s tariffs.
The Federal Open Market Committee (FOMC) held its benchmark interest rate in the range of 4.25% to 4.5%.
The Fed’s reluctance to make a rate move follows a wave of tariffs introduced by the Trump administration, which has clouded the economic outlook. These tariffs raise the risk of slower growth and higher inflation — two factors that could bring the Fed’s dual mandate of stable prices and maximum employment into conflict.
“The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” the Fed noted.
This acknowledgment of rising risks sparked a brief market reaction, with stocks dipping and Treasury yields climbing.
“We view the statement as slightly more hawkish than expected. The Committee did not address the slowing economy,” Morgan Stanley commented after the announcement.
Resolution on the tariff issue appears unlikely in the near future. While the Trump administration has hinted at upcoming trade deals under its country-specific strategy, there’s little sign of progress in resolving the damaging tariff standoff between the U.S. and China.
Shortly after the Fed’s decision, President Donald Trump stated Wednesday that he was not considering rolling back the 145% tariffs on China.
With U.S.-China trade tensions likely to persist, economists believe the Fed will have limited flexibility to adjust monetary policy.
During the post-decision press conference, Fed Chair Jerome Powell emphasized the central bank’s intention to stick with its wait-and-see approach until there’s greater clarity on the effects of the tariffs. “The costs of waiting to see further are fairly low,” Powell explained.
Powell also suggested that uncertainty could linger for some time. “I can’t tell you how long it will take, but for now, it does seem like the clear decision for us is to wait, watch, and assess,” he added.
