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In a widely expected move, the Federal Reserve left interest rates unchanged on Wednesday, opting for caution as the Trump istration's aggressive trade agenda casts a growing shadow over the U.S. economy.
The central bank's policymaking arm, the Federal Open Market Committee (FOMC), held its benchmark overnight borrowing rate steady in the 4.25-4.5 percent range, where it has remained since December. Fed Chair Jerome Powell emphasized that while the broader economy remains on solid footing, rising risks-most notably from trade policy-demand a wait-and-see approach.
"Uncertainty about the economic outlook has increased further," the FOMC said in its post-meeting statement. "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."
Though the Fed made no specific mention of tariffs in its statement, Powell addressed the issue head-on during his post-meeting press conference.
"The economy itself is still in solid shape," Powell said, but he acknowledged the challenges posed by the istration's tariff strategy and how it has complicated the Fed's path forward.
A warning for the economy
Stock markets briefly dipped after the announcement before rebounding, with the Dow Jones Industrial Average closing nearly 300 points higher. Still, some analysts saw the Fed's message as a warning.
"The May FOMC statement in effect warns that a large trade shock is still set to hit the economy in spite of efforts by the Trump istration to deescalate, with the Fed seeing the risks ahead as two-sided and not providing any early dovish lean in favor of a June rate cut," Krishna Guha of Evercore ISI wrote. "The net implications for risk assets are negative."
The Fed is walking a tightrope between its two core mandates-keeping inflation in check and maximizing employment-just as President Trump's tariffs threaten to push inflation up while slowing growth. The mix of rising prices and slowing output has raised fears of a scenario not seen since the early 1980s: stagflation.
Though Powell reaffirmed the Fed's commitment to patience, data suggests turbulence ahead. The economy contracted by 0.3% in the first quarter, dragged down by weak consumer and government spending, and a rush of imports ahead of the tariffs.
Despite this dip, the Fed still believes the broader economy "has continued to expand at a solid pace."