Fed holds rates steady as chair Powell flags "high uncertainty"

The Federal Reserve has kept its benchmark interest rate unchanged, with Chair Jerome Powell highlighting "high uncertainty" regarding the potential effects of the Trump administration’s trade and economic policies.

In its statement, the Fed acknowledged a rise in uncertainty surrounding the economic outlook, Caliber.Az reports per foreign media.

 "The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals," the central bank stated.

According to updated economic projections, the Fed now anticipates slower economic growth this year compared to its forecast three months ago. The unemployment rate in the United States is expected to reach 4.4%, up from 4.1% in February. Meanwhile, inflation is projected to rise to 2.7%, an increase from its current level of 2.5%.

Policymakers have also revised their forecast for gross domestic product (GDP), now expecting an expansion of 1.7% this year—lower than their December estimate of 2.1%. In 2024, GDP grew by 2.8%.

"Inflation has started to move up," Powell stated at a press conference. "We think partly in response to tariffs. And there may be a delay in further progress over the course of this year." While Powell noted that any inflationary impact from tariffs would likely be "transitionary," he acknowledged the difficulty in distinguishing between tariff-induced price increases and those driven by other factors.

Meanwhile, economists have cautioned that the Trump administration's trade measures, including substantial tariffs on Canada and Mexico set to take effect on 2 April, could push inflation higher while dampening economic growth.

"Acknowledging the likely direction of travel in terms of policy from the Trump administration, FOMC participants revised up their projections for inflation while revising down their projections for GDP," commented Stephen Brown, Deputy Chief North America Economist at Capital Economics.

Powell downplayed immediate concerns over a downturn, stating that recession risks were "extremely low" two months ago and, while they had increased, they remained "not high."

Investors had widely expected the Federal Open Market Committee (FOMC), the Fed’s rate-setting panel, to leave interest rates unchanged this month. However, concerns over the administration’s economic policies have heightened financial market uncertainty.

Carl Weinberg, Chief Economist at High Frequency Economics, remarked in a research note ahead of the decision: "What holds the FOMC back from continuing to push interest rates lower at this moment is uncertainty about the Trump administration's economic policies."

The Federal Reserve confirmed that it would maintain the federal funds rate within its current range of 4.25% to 4.5%.

The Fed’s so-called dot plot, which reflects policymakers' expectations for future rate movements, indicates a year-end 2025 median projection of 3.88% for the federal funds rate, suggesting a total of 50 basis points in cuts this year.

Most economists anticipate that the central bank will reduce interest rates two or three times this year, contingent on inflation aligning more closely with the Fed’s 2% annual target.

Following the FOMC’s announcement and Powell’s remarks, stock markets extended modest gains, with major indices rising by approximately 1% or more.

By Aghakazim Guliyev