US Fed keeps interest rates unchanged at 4.25-4.5 pct as tariffs weigh on growth

WASHINGTON -- The US Federal Reserve on Wednesday left target range for the federal funds rate unchanged at 4.25 percent to 4.5 percent, as the Trump administration's tariff policies are expected to lead to higher inflation and slower economic growth.

"Uncertainty about the economic outlook has increased further," the Federal Open Market Committee (FOMC), the central bank's policy-setting body, said in a statement after a two-day meeting.

"The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen," the statement read.

This marks the Federal Reserve's third consecutive decision to keep interest rates unchanged since the January and March meetings.

When asked about the impact of tariffs, Fed Chair Jerome Powell said at a press conference Wednesday afternoon that "we really don't see in the data yet big economic effects."

"We see sentiment, there are concerns that higher prices may be coming or things like that. So, people, they are worried now about inflation. They are worried about a shock from the tariffs. But they really haven't -- that shock hasn't hit yet," said Powell.

Powell noted that all of the Trump administration's new policies are still evolving, and their effects on the economy remain "highly uncertain."

"If the large increases in tariffs that have been announced are sustained, there are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment," Powell told reporters.

"The effects on inflation could be short lived reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent," he continued.

As tariff-related turmoil escalates and inflation risks resurface, economists and market participants are increasingly concerned about slower economic growth, with some fearing a hit to the labor market and the possibility of a recession. Even Fed officials have expressed their concerns.

"It wouldn't surprise me that you might start seeing more layoffs, a tick up in the unemployment rate going forward if the big tariffs in particular come back on," Fed Governor Christopher Waller told Bloomberg in a recent interview. "I would expect more rate cuts, and sooner, once I started seeing some serious deterioration in the labor market."