The Federal Reserve said Wednesday it would hold interest rates unchanged as it warned about the potential for higher unemployment and higher inflation as a result of President Donald Trump’s trade plans.
“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 an increase in unemployment,” Fed Chair Jerome Powell said at a news conference on Wednesday.
The Federal Open Markets Committee kept the central bank’s federal funds rate at a target of 4.25% and 4.5%.
“The new administration is in the process of implementing substantial policy changes in four distinct areas: Trade, immigration, fiscal policy and regulation,” Powell said. “The tariff increases announced so far have been significantly larger than anticipated. All of these policies are still evolving however and their effects on the economy remain highly uncertain.”
Powell said Trump’s tariffs could mark a one-time cost shift or a more persistent inflationary issue.
“For the time being, we’re well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
Trump has repeatedly called on the Federal Reserve to lower interest rates, but the president has limited authority over the independent agency.
Stocks plunged on April 2 when Trump announced his “Liberation Day” tariffs. The markets rallied on April 9 when Trump announced a 90-day pause on his higher tariffs, but kept a 10% baseline tariff on imports in place along with a much higher 145% rate on imports from China. Trump also put a 25% tariff on imported passenger vehicles and auto parts, but softened the blow with complex rules that allow U.S. automakers to reclaim some of those costs.
Trump has promised tariffs will make the U.S. wealthy, bring back manufacturing jobs lost to lower-wage countries in decades past and shift the tax burden away from U.S. families.
A tariff is a tax on imported goods. The importer pays the tax and can either absorb the loss or pass the tax on to consumers in the form of higher prices.
