By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – The U.S. central bank held interest rates steady on Wednesday, and while its policymakers indicated they still expect to reduce borrowing costs by half a percentage point by the end of this year, Federal Reserve Chair Jerome Powell made it clear they would wait for more clarity on Trump administration policies.
“We’re not going to be in any hurry to move,” Powell said in a press conference after the end of the Fed’s latest two-day policy meeting, noting that uncertainty is “unusually elevated” and that policymakers see weaker economic growth and higher inflation boosted at least in part by President Donald Trump’s import tariffs, developments which on their own would each require an opposite policy response.
“Our current policy stance is well-positioned to deal with the risk and uncertainties we face,” he said, noting that the economy is strong and the labor market is balanced, with hiring and firing overall at equally low levels. “The right thing to do is to wait here for greater clarity about what the economy is doing.”
Taking stock of the Trump administration’s rollout of tariffs against major trading partners, Fed officials marked up their outlook for inflation this year, with their preferred measure of price increases expected to end the year at 2.7% versus the 2.5% pace anticipated in December.
“There may be a delay in further progress over the course of this year,” said Powell, referring to the central bank’s 2% inflation target.
Fed officials also marked down their outlook for economic growth for this year to 1.7% from the previous 2.1%, with slightly higher unemployment projected by the end of this year.
Nearly all Fed policymakers felt the risk of higher inflation and lower growth had increased, with a near unanimous sentiment that the outlook for the year was muddled.
The updated quarterly forecasts are the Fed’s first collective attempt to account for the first weeks of the new Trump administration and the initial rollout of what White House officials say will ultimately be global tariffs on imported goods. The Fed left its policy rate in the 4.25%-4.50% range on Wednesday.
Major U.S. stock indices extended their gains slightly after the release of the Fed’s policy statement and projections, with the S&P 500 closing more than 1% higher on the day and the tech-heavy Nasdaq Composite ending up about 1.4%.
U.S. interest rate futures priced in a cut of just over half a percentage point this year, with traders seeing a 62.1% chance of the Fed resuming its rate cuts at its meeting in June, according to LSEG estimates, compared with a 57% chance ahead of the policy statement and projections.
The dollar pared some of its earlier gains, trading about 0.2% higher against an index of major currencies. U.S. Treasury yields also eased, with the benchmark 10-year note yield down 3.5 basis points on the day to 4.246%.
“The Fed is as lost in the wilderness as the rest of us trying to decipher the continual shifts in economic policy from 1600 Pennsylvania Avenue,” said Omair Sharif, president of Inflation Insights, referring to the street address of the White House. “Beyond the cut to median growth this year and the boost to median inflation, the most telling aspect of the (projections) is the shift higher in uncertainty.”
LOWER GROWTH, HIGHER UNEMPLOYMENT
The Fed also said it will slow the ongoing drawdown of its $6.81 trillion balance sheet, known as quantitative tightening.
Fed Governor Chris Waller was the lone dissenter from the policy statement because of the change in balance sheet policy.
The rate projections matched the expectations set by financial markets ahead of the meeting, and kept intact the Fed’s general outlook that gradually slowing inflation will allow further monetary policy easing.
But it may be a rockier road getting there. While not mentioning Trump or tariffs in its policy statement, the Fed’s projections for higher inflation this year coincide with the unveiling of his tariff plans. Powell said tariffs certainly were a factor in those higher projections, but also said it was too early to know if the effects would be persistent enough to draw a policy response.
It appeared, though, that the central bank for now is looking through the price shift involved in those import taxes, treating them as a one-off change rather than a persistent source of price pressures.
Underlying inflation beyond 2025 was unchanged from the Fed’s projections in December, expected to return to 2% by the end of 2027.
The projection for rate cuts beyond this year was also unchanged, hitting 3.1% by the end of 2027, near the level seen as having a neutral effect that neither encourages nor discourages spending and investment.
The Fed cut its benchmark interest rate by a full percentage point last year, but has kept rates on hold this year as it waits for further evidence that inflation will continue to fall, and, more recently, for more clarity about the impact of Trump’s policies.
Compared to Trump’s promise of a coming economic “golden age” because of his push to impose tariffs, deport large numbers of immigrants and loosen regulations, the Fed’s outlook forecasts growth at 1.7% this year and just 1.8% in both 2026 and 2027, with the unemployment rate at 4.4% this year and 4.3% in 2026 and 2027. The unemployment projections are above the lows of recent years and the latest reading of 4.1% in February.
(Reporting by Howard Schneider; Editing by Chizu Nomiyama and Paul Simao)
