U.S. Federal Reserve Holds Interest Rates Steady Amid Tariff Uncertainty

The U.S. Federal Reserve has elected to leave its key interest rate unchanged, saying that it needs more data on the impacts of President Donald Trump’s tariffs before it can act.

The American central bank kept its trendsetting Feds Fund Rate at 4.3% for the third consecutive meeting, after previously cutting it three times in a row at the end of 2024.

Futures traders on Wall Street still expect the Fed to cut interest rates two or three times this year, but the timing of those reductions has been thrown into doubt by the uncertainty due to tariffs and President Trump’s combative trade policies.

At a news conference, U.S. Federal Reserve Chair Jerome Powell stressed that the central bank needs more data and information on how the economy is being impacted by tariffs before it can react and act on interest rates.

“If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth, and a rise in unemployment,” said Powell.

“There’s just so much that we don’t know,” he added. “We’re in a good position to wait and see.”

Though he didn’t use the term directly, economists said that the Fed Chair was talking about “stagflation,” a situation where inflation rises even though economic growth slows.

Stagflation last occurred in the U.S. in the late 1970s and early 1980s and is widely viewed as a worst-case scenario for a central bank.

Most economists seem to agree that Trump’s import tariffs have put the Federal Reserve in a tough spot.

Powell said at the news conference that the central bank’s next move on interest rates will likely depend on which indicator worsens the most: inflation or unemployment.

“Depending on how things play out, it could include rate cuts, it could include us holding where we are, we just need to see how things play out before we make those decisions,” said the central bank governor.

With inflation not far from the Federal Reserve’s 2% target, President Trump has been calling publicly for the central bank to lower interest rates and boost the economy.

After the Fed’s latest decision to hold interest rates at current levels, Trump took to social media and wrote that Chair Powell is a “FOOL, who doesn’t have a clue.”

The Federal Reserve is next scheduled to decide on interest rates June 18.