Federal Reserve officials held interest rates steady for a third-straight meeting and emphasized they see a growing risk of both higher inflation and rising unemployment.
“Uncertainty about the economic outlook has increased further,” the Federal Open Market Committee said in a statement Wednesday at the conclusion of a two-day meeting in Washington. “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.”
Officials voted unanimously to keep the benchmark federal funds rate in a range of 4.25% to 4.5%, where it has been since December.
The S&P 500 index of US stocks rose following the announcement, while Treasury yields fell and the dollar pared gains.
President Donald Trump‘s trade policy has unleashed a wave of uncertainty across the economy. While the levies are still being negotiated, economists widely expect the expansive tariffs to boost inflation and weigh on growth. That would pit policymakers’ two goals - price stability and maximum employment - against one another.
Chair Jerome Powell will hold a press conference with reporters at 2.30pm in Washington.
See also: Trump says he won’t lower China tariffs to jump-start talks
With unemployment still low and demand steady, Fed officials have said they are comfortable keeping rates unchanged until they have a better understanding of where the economy is headed. Trump, however, has repeatedly said the central bank should lower borrowing costs.
Powell and his colleagues are determined to keep tariffs from sparking a persistent rise in inflation, and several officials have signalled they would not support lowering interest rates preemptively to protect against a slowing economy.
Economic picture
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Recession concerns have grown, and some businesses have reported pausing investment decisions given the uncertainty. Still, the labour market remains resilient, with employers adding 177,000 jobs in April. Fed officials described labour market conditions as “solid,” according to the statement.
Economists say it will take time for the full effect of the new tariffs to work through the economy. So far, the impact has mainly included a sharp decline in sentiment and a surge in imports. The US economy contracted at the start of the year for the first time since 2022, but a gauge of underlying demand stayed firm.
“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace,” the statement said.
Companies scrambled in the first quarter to import merchandise ahead of the tariffs, and a surge in consumer spending in March suggested households also sought to frontload purchases. Key inflation gauges cooled in the month.
Trump, meanwhile, has ramped up his criticism of Powell in recent weeks. At one point, Trump said in a social media post that “Powell’s termination cannot come fast enough!”
But the president has since insisted that he does not intend to fire Powell.
The Fed said it would continue to shrink its balance sheet at the reduced pace announced at the March meeting. The monthly cap on the amount of Treasury securities that can mature without being reinvested held at US$5 billion ($6.46 billion), while the cap for mortgage-backed securities was also unchanged at US$35 billion.
The central bank announced Tuesday that Kansas City Fed President Jeff Schmid would miss the May meeting due to the recent death of his wife. Kansas City was represented by First Vice President Kim Robbins. Schmid’s vote passed to alternate member Neel Kashkari, president of the Minneapolis Fed.
