By Howard Schneider, Ann Saphir
WASHINGTON (Reuters) -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, 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.
Thomas Simons, chief U.S. economist at Jefferies, said the language downplayed just how much disruption had occurred since the Fed’s March 18-19 meeting, and how unpredictable the outlook had become.
“All of the ‘Liberation Day’ tariff news, the April 9 announcement of a 90-day delay, the back and forth on trade deals and tariff exemptions in the headlines, and the resultant negativity expressed in business and consumer surveys make it impossible to judge what the economic outlook is, let alone whether the skew of risks around it has changed,” Simons wrote, calling Powell “predictably noncommittal” given the situation.
RISKS TO DUAL MANDATE
The Fed’s statement, and much of Powell’s comments to reporters as well, vouched for the economy’s continued resilience, with job gains continuing and the economy still growing at a “solid pace.” The recently reported decline in gross domestic product in the first quarter, Powell said, was skewed by a record rush of imports as businesses and households tried to front-run expected import taxes, with measures of domestic demand still growing.
