Fed Holds Rates Steady Over Increased Economic Uncertainty

What Happened?

The Federal Reserve kept its benchmark interest rate unchanged on Wednesday following its latest meeting to discuss the U.S. economy.

In a post-meeting statement, the central bank's decision pointed to the increased 'uncertainty about the economic outlook.'

'The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,' the statement read.

May's meeting marks what experts call an unusual period amid President Donald Trump's latest moves that have shaped global markets.

Fed Chair Jerome Powell addressed tariff-related concerns surrounding the Trump administration as the ones who hold the tools to resolve this issue.

'I mean, we don’t have the kind of tools that are good at dealing with supply chain problems. We don't have that at all,' said Powell. 'That’s a job for the administration and for the private sector more than anything.'

While the Fed could lower interest rates, Powell believes that move would be 'very inefficient' to address supply chain matters.

The U.S. stock market briefly dropped before it ceded some gains Wednesday following the announcement, according to CNBC.

Despite economic worries the Fed characterized, the Dow Jones was up nearly 300 points.

Why it Matters

The Fed’s decision came as officials considered the increased risks of lowering rates following the latest trajectory of inflation and unemployment.

Trump’s moves on tariffs have left a heavy imprint after the U.S. economy experienced its worst quarter since 2022.

The International Monetary Fund also lowered its 2025 projections for U.S. growth to 1.8%, compared to a 2.8% expansion in 2024.

Consumer Sentiment Index ratings in April plunged as 12-month inflation expectations surged to its highest level since 1981.

Those increased warnings highlighted the risks of a 2025 recession.

Trump had previously criticized Powell over frustrations that interest rates are not being cut quickly enough.

He pointed to the European Central Bank's expectations to cut interest rates for the seventh time as a basis for the Fed to make its move.

Powell maintained his previous position that the central bank will 'wait for greater clarity' before considering future cuts.

How it Affects You

The U.S. and China still hold high trade levies that maintain a heavy impact on each other's imports.

In addition, Trump has maintained universal tariffs of 25% on automotives, steel, and aluminum.

Growth in the U.S. could potentially be driven down by two percentage points this year due to these actions.

Business owners have stated that these moves could drive up costs for consumers.

Many businesses have begun making operational cuts to align with these market changes.

Finding the balance between price stability and full employment has made a difficult challenge for the Fed's which remains uncertain.