The Federal Reserve left interest rates unchanged on Wednesday for a third meeting in a row, as officials pointed to heightened uncertainty about how significantly President Trump’s tariffs will raise inflation and slow growth.
The unanimous decision to stand pat will keep interest rates at 4.25 percent to 4.5 percent, where they have been since December after a series of cuts in the second half of 2024.
The Fed gathered at a highly volatile moment for the economy and the global financial system amid an onslaught of policy changes from Mr. Trump just months into his second term in the White House.
In a statement on Wednesday, the Fed acknowledged that the labor market was still “solid.” But policymakers also noted that “uncertainty about the economic outlook has increased further” and “risks of higher unemployment and higher inflation have risen.”
At a news conference after the decision, Jerome H. Powell, the Fed chair, said he could not yet say “which way this will shake out” in terms of whether to be more worried about inflation or growth.
Mr. Powell did not deviate much from an earlier stance that the Fed is not in a “hurry” to lower interest rates. He stressed that the Fed was “well positioned” to respond in a “timely way to potential economic developments” and that the costs of waiting were still “low.”
“It’s really not at all clear what it is we should do,” he told reporters.
Since the Fed’s last meeting in March, the Trump administration announced and then rolled back aggressive new tariffs as the president gave countries time to reach trade deals ahead of a July deadline. Still, a 10 percent universal tariff remains in place, along with additional levies on steel, aluminum and cars. Mr. Trump has also imposed a minimum tariff of 145 percent on Chinese goods.
The whiplash has unnerved financial markets, stoking volatility as Wall Street digested the various twists and turns associated with Mr. Trump’s trade policy and his subsequent attacks on Mr. Powell for ignoring his demands to lower interest rates. Last month, investors started to flee what are considered financial “safe havens,” signaling that markets had come under strain.
The upheaval has created complications for the central bank. It is struggling to both assess the economic fallout from Mr. Trump’s policies and game out how it will set monetary policy in an environment in which its goals of maintaining a healthy labor market and keeping inflation low and stable may be in conflict.
Mr. Powell reiterated that the Fed would face a “difficult judgment” if the labor market weakened as inflation rose and would focus on the distance of each from the respective goals and the time it would take to get back to target.
That’s a situation, Mr. Powell said, the Fed hadn’t faced “in a long time.”
If the Fed saw a “significant deterioration” in the labor market, the chair said, the central bank would “look to be able to support that.” But “you’d hope it wasn’t also coming at a time when inflation was getting very bad.”
Officials have grown increasingly worried about how much Mr. Trump’s policies, which also include slashing spending and deporting immigrants, will sap growth. Some companies have already started to warn about sluggish sales as consumers have turned much more downbeat about the outlook; the fear is that the uncertainty will further chill business activity.
But in contrast to the past, the Fed is not in a position to respond to early signs that the economy is weakening by preemptively lowering interest rates. That is because of inflation: Price pressures stemming from the post-pandemic surge have not been fully snuffed out, and now Mr. Trump’s tariffs risk rekindling them.
Mr. Powell confirmed on Wednesday that the current circumstances were not those that allowed the Fed to be pre-emptive “because we actually don’t know what the right response to the data will be until we see more data.”
It is too early to tell if the tariff-induced jump in inflation will prove to be temporary, or if it morphs into something more persistent. So far, market-based measures of inflation expectations, to which the Fed pays closest attention, suggest that inflation will indeed remain contained after an initial pop. But officials do not want to make the same mistake they did just a few years ago, when they underestimated how long lasting inflation would prove to be.
As such, the bar for the central bank to lower interest rates is higher this time.
Officials will most likely need to see tangible evidence that the labor market is beginning to weaken before restarting cuts. If monthly jobs growth grinds to a halt, or turns negative, and layoffs rise, that could be enough to bolster the central bank’s conviction that it can begin to reduce rates.
But waiting to see that show up in the data may mean that the Fed has moved too late, potentially prompting the need for officials to cut more aggressively later on.
The Fed’s patient approach to rate cuts is likely to keep tensions simmering with Mr. Trump, who has repeatedly attacked Mr. Powell for not acquiescing to his demands for lower borrowing costs. Mr. Trump will get a chance to pick a new Fed chair soon, as Mr. Powell’s term is up next May.
When asked on Wednesday about his plans after his time as chair expires and whether he would continue on as a governor until his term ended in 2028, Mr. Powell said his focus was on “trying to navigate this tricky passage we’re in right now.”
“This is a challenging situation, and that’s 100 percent of our focus right now,” he said.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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