The Federal Reserve announced Wednesday it will keep its benchmark interest rate unchanged at 4.25% to 4.5%, adopting a cautious stance amid economic uncertainties tied to President Donald Trump’s proposed tariff policies.
The decision, made unanimously by the Federal Open Market Committee (FOMC), follows three rate cuts in 2024 that lowered the federal funds rate from 5.5%.
Federal Reserve Chair Jerome Powell cited the tariffs as the reason the FOMC decided not to lower interest rates further.
“The tariff increases announced so far have been significantly larger than anticipated,” he told reporters following the FOMC’s two-day meeting. “If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
However, it is unknown whether the tariffs could trigger a short-lived inflation spike or something more persistent, how long they will remain in place, and what effect they will have on the economy.
“What looks likely, given the scope and scale of the tariffs, is that we will see, certainly the risks to higher inflation and unemployment have increased,” Powell continued. “And if that’s what we do see and if the tariffs are ultimately put in place at those levels, which we don’t know, then we won’t see further progress toward our goals.”
Powell declined to commit to any rate cuts in the near future, preferring to take a wait-and-see approach.
“It’s going to depend. … We’re going to need to see how this evolves,” he said.
For now, though, the economy appears to be healthy.
“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace,” the Federal Reserve Bank said.
President Donald Trump has publicly called on Powell to lower interest rates, writing on Truth Social last week, “NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!”
However, when asked whether Trump’s comments had any bearing on the Fed’s decisions, Powell responded, “(It) doesn’t affect doing our job at all. We’re always going to consider only the economic data, the outlook, the balance of risks, and that’s it.”
The next FOMC meeting is scheduled for June 17-18.