The Federal Reserve held its benchmark interest rate steady on Wednesday, with Chair Jerome Powell saying there is “high uncertainty” about the potential impact of the Trump administration’s trade and other economic policies.
“Uncertainty around the economic outlook has increased,” the Fed stated in its announcement. “The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals.”
The Fed now expects the economy to grow more slowly this year than it did three months ago, with unemployment around the U.S. projected to hit 4.4%, up from 4.1% in February, according to economic projections also released Wednesday. The central bank forecasts inflation to edge up to 2.7%, up from from its current level of 2.5%.
Policymakers now expect the nation’s gross domestic product — the total output of goods and services — to expand 1.7% this year, down from their December forecast of 2.1%. In 2024, GDP grew 2.8%.
“Inflation has started to move up,” Powell said at a news conference. “We think partly in response to tariffs. And there may be a delay in further progress over the course of this year.”
Powell’s base case in that any increase in inflation stemming from tariffs would be “transitionary,” but later said it would be difficult to separate how much price hikes stem from tariffs as opposed to other factors.
Recession odds “extremely low”
Economists have warned that the Trump administration’s aggressive trade policies, including steep tariffs on Canada and Mexico scheduled to take effect April 2, could boost inflation and weigh on economic activity.
“Acknowledging the likely direction of travel in terms of policy from the Trump administration, FOMC participants revised up their projections for inflation while revising down their projections for GDP,” Stephen Brown, deputy chief North America economist with Capital Economics, said in a report.
Chances of a recession “were extremely low — if you go back two months. It has moved up, but it’s not high,” Powell told reporters.
Investors had signaled virtually no chance of the Federal Open Market Committee (FOMC), the central bank’s rate-setting panel, lowering interest rates this month. But President Trump’s aggressive trade policies, which have triggered concerns about economic growth, have also amplified uncertainty for financial markets.
“What holds the FOMC back from continuing to push interest rates lower at this moment is uncertainty about the Trump administration’s economic policies,” Carl Weinberg, chief economist at High Frequency Economics, wrote Wednesday in a research note ahead of the Fed’s decision.
The Fed said it will maintain the federal funds rate at its current range of 4.25% to 4.5%.
The central bank’s so-called dot plot, used by the Fed to indicate its outlook for where interest rates are headed, indicates the year-end 2025 median projection for the federal funds rate at 3.88%, signaling 50 basis points in cuts this year.
Most economists expect the Fed to lower interest rates two or three times this year, although that hinges on inflation continuing to move closer to the central bank’s 2% annual target.
Stocks added to modest gains after the FOMC decision and as Powell spoke, with benchmark indexes all gaining about 1% or more.
contributed to this report.
