The Federal Reserve on Wednesday kept interest rates unchanged as central bank officials weigh the impact of President Donald Trump’s aggressive economic agenda.
Wednesday’s decision, which comes at the conclusion of the Fed’s two-day monetary policy meeting, shows that central bankers are waiting for evidence that inflation is headed toward their 2% target — or that the economy is weakening more than expected. Those are the two outcomes that would put rate cuts back on the table.
Officials still expect to trim borrowing costs twice this year, according to their latest economic projections released Wednesday, though eight officials are predicting one or no cuts this year, compared to only four who expected that in December.
Fed Chair Jerome Powell in his post-meeting news conference acknowledged the high level of uncertainty among American consumers and businesses — a lot of it stemming from the Trump administration’s “turmoil,” he said. Powell said that “it remains seen how these developments affect future spending and investment.”
The Fed’s key borrowing rate remains in the 4.25% to 4.5% range. Standing pat also allows Fed policymakers to see how the Trump administration’s flurry of policy changes ultimately affects the US economy, he said. That includes hefty tariffs, mass deportations and a downsizing of the federal workforce.
In recent speeches, officials have said they’re willing to adjust interest rates in either direction, depending on what economic figures show.
The Fed’s latest pause marks the second time in a row that the central bank held borrowing costs steady.
Fed policymakers also expect the economy to be weaker this year than previously thought, according to the projections. They also forecast inflation to be higher this year.
To put it simply, as the Trump administration sets out to enact structural changes, Fed officials see the US economy trending toward “stagflation,” a troubling combination of sluggish or negative growth and accelerating inflation. It remains to be seen whether the US economy ultimately slips into a period of outright stagflation, which last occurred in the 1970s.
All 12 Fed officials with voting power voted in favor of Wednesday’s decision to hold interest rates steady, though Fed Governor Christopher Waller dissented to a decision to slow the pace of the central bank’s offloading of securities on its balance sheet.
Here are key takeaways from the Fed’s latest decision as Trump proceeds with significant policy changes.
