What to Watch at the Federal Reserve’s May Meeting

The Federal Reserve is set to extend its pause on interest rate cuts on Wednesday amid concerns that President Trump’s tariffs will unleash fresh inflationary pressures while also hurting growth, a tricky combination that could lead to painful trade-offs for the central bank.

A decision to stand pat would keep interest rates at 4.25 percent to 4.5 percent, a level reached in December after a series of cuts in the second half of 2024.

Fed officials are in wait-and-see mode for now. They are closely tracking the incoming data for signs that consumer prices are rising again after a multiyear battle to keep them at bay, or that an otherwise solid labor market is starting to weaken. What they need is greater clarity on what, exactly, Mr. Trump has in store for the economy after a whirlwind of tariff announcements, government spending cuts and deportations.

The Fed will release its latest policy statement on Wednesday at 2 p.m. in Washington. Jerome H. Powell, the Fed chair, will hold a news conference right after.

Here is what to watch for on Wednesday.

Temporary or Persistent?

Mr. Trump’s tariffs are widely expected to raise consumer prices, but the question is whether this will be a one-off increase or feed into a more persistent inflation problem. The answer will determine how carefully the Fed will proceed in terms of lowering interest rates.

At the last meeting in March, Mr. Powell told reporters that the Fed’s base case was for tariff-induced inflation to be “transitory,” reviving a term that gained notoriety after the Fed and other forecasters used it to initially describe price pressures during the pandemic. Those ended up causing the worst inflation spike in decades.