The Federal Reserve left its key interest rate unchanged Wednesday, holding the federal funds rate at 4.25%–4.5 % for the third straight meeting, but issued a sharp warning about growing risks from President Donald Trump’s aggressive tariff policies.
- The Fed’s policy statement highlighted rising risks of higher inflation and unemployment, noting that economic uncertainty has “increased further.”
- While core economic indicators remain solid, the Fed acknowledged that trade wars are distorting data, especially as businesses scramble to import goods before tariffs hit.
- Consumer sentiment is plunging, and U.S. ports warn shipping volumes are set to drop sharply.
Powell’s stance:
Fed Chair Jerome Powell had already warned last month that the scale of Trump’s tariff hikes is “significantly larger than anticipated,” predicting:
“The economic effects will include higher inflation and slower growth.”
The Fed now faces a dilemma:
- If inflation spikes, it may need to raise rates.
- If hiring and growth slow, it may be forced to cut rates.
Trump, who appointed Powell in 2017, has backed off threats to fire the Fed chief but has increased public calls for rate cuts.
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