Washington May 7 2025: The Federal Reserve held interest rates steady on Wednesday but said the risks of higher inflation and unemployment had risen, further clouding the U.S. economic outlook as its policymakers grapple with the impact of President Donald Trump’s tariffs.
At this point, Fed Chair Jerome Powell said, it isn’t clear if the economy will continue its steady pace of growth, or wilt under mounting uncertainty and a possible coming spike in inflation.
With so much unsettled about what Trump will ultimately decide and what of that survives possible court and political battles, “the scope, the scale, the persistence of those effects are very, very uncertain,” Powell said in a press conference at the end of a two-day policy meeting. “So it’s not at all clear what the appropriate response for monetary policy is at this time … It’s really not at all clear what it is we should do.”
“I don’t think we can say which way this will shake out.”
It was Powell’s subtle way of saying the U.S. central bank, a key actor in shaping the economy, was effectively sidelined until Trump’s sweeping policy agenda takes full effect.
The Fed’s policy statement, opens new tab, which held the benchmark overnight rate steady in the 4.25%-4.50% range, noted that since the central bank’s last meeting in March “uncertainty about the economic outlook has increased further,” and that risks were increasing that both inflation and unemployment could increase.
