The Federal Reserve held its benchmark interest rate steady on Wednesday, continuing a wait-and-see approach adopted by the central bank in recent months as it observes potential effects of President Donald Trump’s tariff policy.
Four meetings and six months have elapsed since the Fed last adjusted interest rates. The federal funds rate stands between 4.25% and 4.5%, preserving much of a sharp increase imposed in response to a pandemic-era bout of inflation.
The Fed issued a forecast on Wednesday indicating some concern about a rekindling of inflation. The personal consumption expenditures index, a measure of inflation preferred by the Fed, will rise from 2.1% to 3% over the remainder of 2025, the central bank predicted. That forecast marked higher inflation expectations than the central bank had issued in March.
The Fed also forecasted two quarter-point interest-rate cuts over the remainder of 2025, carrying over a prediction issued in March. Two additional quarter-point cuts will be made in 2026, as well as one quarter-point cut in 2027, the central bank said.
Speaking at a press conference in Washington, D.C., on Wednesday, Powell said tariffs would likely “push up prices and weigh on economic activity” over the course of this year. But, he added, the effects would depend on the “ultimate level” of tariffs, which have frequently fluctuated.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” Powell said.
The Fed’s latest rate decision defied remarks made hours earlier by Trump, who called Federal Reserve Chair Jerome Powell a “stupid person” and urged the central bank to reduce interest rates.
“We have a man who just refuses to lower the Fed rate,” Trump told reporters. “Maybe I should go to the Fed. Am I allowed to appoint myself? I’d do a much better job than these people.”
The posture of restraint at the Fed in recent months has elicited sharp and repeated criticism from Trump. The president is legally barred from appointing himself head of the Fed, an independent federal agency.
Since Trump took office, inflation has eased and job growth has slowed.
Fresh inflation data last week showed a slight acceleration of price increases, but inflation remains near its lowest level since 2021. Hiring slowed but remained sturdy in May as the uncertainty surrounding on-again, off-again tariffs appeared to curtail hiring less than some economists feared, a government report this month showed.
The Fed is guided by a dual mandate to keep inflation under control and maximize employment. In theory, a lowering of interest rates could help stimulate economic activity and boost employment, especially while inflation remains low.
Powell, in recent months, has warned about the possibility that tariffs may cause what economists call “stagflation,” which is when inflation rises and the economy slows.
Stagflation could put the central bank in a difficult position. If the Fed raises interest rates as a means of protecting against tariff-induced inflation under such a scenario, it risks stifling borrowing and slowing the economy further.
On the other hand, if the Fed lowers rates to stimulate the economy in the face of a potential slowdown, it threatens to boost spending and worsen inflation.
In recent weeks, Trump has dialed back some of his steepest tariffs, easing the costs imposed upon importers. Such companies typically pass along a share of the higher tax burden in the form of price hikes.
Federal Reserve Chair Jerome Powell delivers remarks during the Division of International Finance 75th Anniversary Conference, June 2, 2025, in Washington, D.C.
Chip Somodevilla/Getty Images
A trade agreement between the U.S. and China slashed tit-for-tat tariffs between the world’s two largest economies and triggered a surge in the stock market. Within days, Wall Street firms softened their forecasts of a downturn.
The U.S.-China accord came weeks after the White House paused a large swath of Trump’s “Liberation Day” tariffs targeting dozens of countries. Trump also eased sector-specific tariffs targeting autos and rolled back duties on some goods from Mexico and Canada.
Still, an across-the-board 10% tariff applies to nearly all imports, except for semiconductors, pharmaceuticals and some other items. Those tariffs stand in legal limbo, however, after a pair of federal court rulings late last month.
Tariffs remain in place for steel, aluminum and autos, as well as some goods from Canada and Mexico.
Warning signs point to the possibility of elevated prices over the coming months.
Nationwide retailers like Walmart and Best Buy have voiced alarm about potential price hikes as a result of the levies.
The Organization for Economic Co-operation and Development, or OECD, said this month it expects U.S. inflation to reach 4% by the end of 2025, which would mark a sharp increase from current levels.
Powell has opted to leave rates unchanged as the Fed assesses the economic impact of tariffs.
“We don’t think we need to be in a hurry,” Powell said at a press conference in Washington, D.C., last month. “We think we can be patient.”
