Fed holds rates steady, brushing off Trump’s calls for cuts

The Federal Reserve kept interest rates unchanged Wednesday as it continues to gauge the fallout from President Donald Trump’s trade war and other policies that have clouded the economic outlook.

Central bankers still expect to cut rates two more times this year, as they did a few months ago, but more policymakers suggested they have doubts about whether cuts are warranted at all this year.

Officials also projected that the economy will grow more slowly and that the unemployment rate will tick up slightly, compared with their last forecast. They also predicted inflation would heat up this year before dissipating.

“The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It’s also possible that the inflationary effects could instead be more persistent,” said Fed Chair Jerome H. Powell in a news conference. “Avoiding that outcome will depend on the size of the tariff, effects on how long it takes for them to pass through fully into prices, and ultimately on keeping longer term inflation expectations well anchored.”

For the fourth consecutive meeting, the Fed kept its benchmark short-term rate, which trickles through the financial system to influence what millions of consumers and businesses pay to borrow money, at 4.25 to 4.5%.

Ahead of Wednesday’s meeting, President Donald Trump renewed his attacks on Powell for not lowering interest rates, calling the central bank leader “stupid” while publicly riffing on whether he could appoint himself as Powell’s replacement. Trump also pressed for cuts of more than 1%.

“So we have a stupid person,” Trump said. “I think he hates me, but that’s OK. I’ve been so nice to him, fellas … I do it every way in the book. I’m nasty, I’m nice. Nothing works.”

The Fed remains in a tricky spot, tasked with balancing its dual mandate of maximum employment and stable inflation. Prolonged trade uncertainty risks slowing growth and unsettling financial markets — conditions that would normally prompt a rate cut. At the same time, tariffs could reignite inflationary pressures, potentially justifying higher rates instead. Some economists warn that price increases could take longer to show up than signs of a weakening economy.

But for the moment, Powell said the economy appears to be on sturdy ground.

“Look at labor force participation. Look at wages, look at job creation. They’re all at healthy levels now, I would say you can see perhaps, a very, very slow continued cooling, but nothing that’s troubling at this time,” Powell said. “Overall, again, the current stance of monetary policy leaves us well positioned to respond in a timely way to economic developments.”

Powell’s comments at his post-meeting news conference Wednesday will offer the clearest clues about the central bank’s thinking on the path ahead.

Trump’s repeated calls for the Fed to cut rates — aimed at heading off any economic slowdown — have further complicated the picture. Despite meeting privately with Powell last month in the Oval Office, Trump has renewed his attacks on the Fed leader in recent days. Last week, Trump called Powell a “numbskull” for not lowering interest rates and asserted that doing so would save “greatly reduce interest rates,” though he ruled out trying to remove Powell, who is in his final year as Fed chairman.

While the White House pressures Powell to ease policy, the Fed remains wary of moving too soon, mindful of its slow response to post-pandemic inflation that left prices climbing well above its 2% target.

Recent inflation readings have been surprisingly subdued, thanks in part to lower energy prices. But that relief may prove temporary. Powell said earlier this year that tariffs are “highly likely” to spur a temporary rise in inflation, cautioning that those effects could end up being longer-lasting. Meanwhile, the ongoing conflict between Iran and Israel also threatens to disrupt oil markets, potentially driving up gasoline prices and adding fresh inflationary pressure

Tariffs can throw a wrench into the economy by making it harder to produce goods and services while also pushing prices higher. The chaotic way Trump’s higher import levies have been rolled out makes it tough for businesses to plan, with some putting investment decisions on hold until the dust settles.

Under one optimistic scenario, overall tariffs settle at a relatively low effective rate — perhaps at around 10 percent — and after a one-time price hike, tariff-driven inflation dissipates fairly quickly. Such an outcome would allow for what Fed governor Christopher J. Waller has described as a “good news” rate cut later this year, as long as the labor market continues to hold up.

Other Fed officials have said that the chaotic nature of the tariff rollout — in which import taxes are announced then delayed or lowered, or in some cases doubled — has made the situation far more complex for the central bank, and could ultimately alter consumer and business expectations.

“The textbook notion about tariffs is that … the tariffs get applied once, and everybody understands what they are,” Atlanta Fed President Raphael Bostic told reporters this month. “That’s not the environment we’ve had over the last several months, and so there’s a question about how people will respond — to take on board a rollout that extends over a protracted period of time.”