Fed leaves interest rates unchanged as Trump tariffs fuel doubts over economy

The Federal Reserve left interest rates unchanged as it warned of faltering economic growth and higher inflation this year.

Keeping interest rates in the target 4.3% range, central bankers on Wednesday forecast two cuts this year – even as President Trump’s back-and-forth tariffs fuel market volatility and doubts over the US economy.

Signaling that it’s sticking with a “wait and see” approach, the Federal Open Market Committee said “uncertainty around the economic outlook has increased.” Still, officials expect price increases to slow, a forecast that points to Trump’s tariffs as a temporary, one-time event.

Fed Chair Jerome Powell said the economy is still in good standing, although on inflation he warned that “progress is probably delayed for the time being” as prices tick higher. The Fed said it expects 2.7% inflation this year versus a 2.5% forecast in January.

The S&P 500, Dow and Nasdaq all rose after the meeting, with the Dow surging nearly 400 points. 

“The committee is in the midst of policy fog as they await the impact from upcoming tariffs,” Jeffrey Roach, chief economist at LPL Financial, said in a note. “The updated projections are more downbeat and will place downside pressure on the dollar in the near term.”

Meanwhile, Trump has been calling for the central bank to lower rates immediately after butting heads with Fed Chair Jerome Powell in the past over who has the power to slash rates.

Prior to Wednesday’s meeting, analysts largely expected the Fed to hold off on interest rates for at least the next few months as trade war tensions threaten to reheat inflation.

Markets have plunged dramatically over the past few weeks, losing post-election gains entirely as the threat of higher prices spooked investors.

“There’s so much uncertainty in the economy right now, but what seems clear is that anyone hoping for the Fed to lower rates is going to have to wait at least a few months,” Matt Schulz, chief consumer finance analyst at LendingTree, said in a note ahead of Powell’s press conference.

“That stinks if you’re in the market for a new home, credit card or auto loan, but it is good news for savers,” he added, since high-yield savings accounts will likely stay high for a while.

Earlier this month, Powell similarly maintained that the economy is in “a good place.”

“Wages are growing faster than inflation, and at a more sustainable pace than earlier in the pandemic recovery,” Powell said earlier this month during a speech at the US Monetary Policy Forum, adding that inflation is easing back to 2%.