The Federal Reserve kept its benchmark interest rate unchanged Wednesday, citing persistent inflation and heightened uncertainty over recent policy shifts, including sharp increases in tariffs.
The Federal Open Market Committee left the target range for the federal funds rate at 4.25% to 4.5%, maintaining its current stance for the fourth straight meeting. Fed Chair Jerome Powell said the decision reflects continued concerns about the inflation outlook and growing risks to both employment and economic growth.
“In support of our goals, today the FOMC decided to leave our policy interest rate unchanged,” Powell said in prepared remarks at a press conference. “We are well positioned to respond in a timely way to potential economic developments.”
While Powell noted progress in bringing down inflation from its 2022 peak, he warned that price pressures remain above the Fed’s 2% target. Total personal consumption expenditures (PCE) prices rose 2.3% over the 12 months ending in March, while core PCE increased 2.6%. He also highlighted rising near-term inflation expectations, which he attributed largely to recently announced tariffs.
“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” Powell said.
Despite those risks, Powell said the labor market remains solid, with unemployment holding at 4.2% and job gains averaging 155,000 per month over the past three months.
Powell emphasized the Fed’s commitment to its dual mandate — maximum employment and stable prices — but acknowledged the potential for those goals to conflict in the coming months.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” he said. “For the time being, we are well positioned to wait for greater clarity before considering any adjustments.”
The Fed also continued reducing the size of its balance sheet and resumed a review of its policy framework, which Powell said would conclude by late summer.
The next FOMC meeting is scheduled for June 17-18.
