Federal Reserve Holds Key Interest Rate Steady

The Federal Reserve held its key interest rate steady Wednesday, keeping downward pressure on inflation out of concern that President Donald Trump’s tariffs could push up prices.

As widely expected, the Federal Open Market Committee voted unanimously to hold the fed funds rate at a range of 4.25% to 4.5%, the same level it’s been since December. Fed officials have held off on cutting rates out of concern merchants will pass along the cost of Trump’s tariffs to customers, possibly reigniting inflation as soon as the second half of the year.

However, Fed officials expect to make two quarter-point rate cuts at some point this year, according to quarterly economic projections released alongside the interest rate decision. That’s the same number of cuts projected in March before Trump announced his sweeping “Liberation Day” tariffs that have shaken up the economic outlook.

Follow along with the Federal Reserve press conference following the announcement below.

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Notably, Fed officials said the uncertainty that has kept the Fed in a holding pattern—a major theme of recent speeches by officials—has lessened since their last meeting in May.

“Uncertainty about the economic outlook has diminished but remains elevated,” the FOMC said in a statement.

Why The Fed Hasn’t Cut

The Fed’s “wait-and-see” approach this year reflects the dilemma the central bank currently faces because of Trump’s trade war. Tariffs threaten both sides of the Fed’s dual mandate from Congress to keep a lid on inflation while preventing a severe increase in unemployment.

Economists have predicted that the tariffs could stoke inflation, drag down the economy, or both. However, neither problem has yet been revealed in the government’s data. Inflation was tame in May despite several of Trump’s major tariffs being in full effect that month. Fed officials said they expect slower GDP growth, higher inflation and increased unemployment than they did when they last published their economic projections in March.

The Fed’s tool for achieving its dual mandate is the fed funds rate, which influences interest rates on all kinds of loans: a lower fed funds rate means easier money and a boost to the economy, but potentially stokes inflation.

The fed funds rate has been up and down in recent years as the central bank has tried to keep the economy on steady footing through the upheavals of the pandemic era. The Fed initially responded to COVID-19 by cutting the key rate to near zero and holding it there for years. When inflation surged after the pandemic, the Fed responded by cranking up the rate to a two-decade high starting in 2022.

Inflation has cooled down since mid-2022, almost to the Fed’s goal of a 2% annual rate, prompting the Fed to cut rates last year. However, the Fed held off on further cuts starting in January, as uncertainty around how fiscal policies would affect the economy muddied the outlook.

The high rates have kept borrowing costs high for credit cards, car loans, and have even indirectly put upward pressure on mortgage rates, which are also higher than pre-pandemic levels.

For his part, Trump has repeatedly demanded that the Fed lower interest rates and has frequently insulted Fed Chair Jerome Powell for not doing so.

So far, the Fed has resisted those requests, with officials saying their decisions are guided by economic considerations, not politics. The Fed is an independent institution outside the direct control of the White House, although the president does have the power to appoint some of its leaders.

Update, June 18, 2025: This article has been updated to include additional information from the Federal Reserve’s Summary of Economic Projections.