The Federal Reserve maintained its benchmark interest rate on March 19, opting to hold steady in the face of growing economic uncertainty linked to President Donald Trump’s policy moves and inflationary pressures.
Concluding its two-day monetary policy meeting, the central bank kept its key borrowing rate in the 4.25% to 4.5% range -- marking the second consecutive pause in rate hikes. Fed officials said they are awaiting more definitive signals from inflation trends and broader economic performance before adjusting borrowing costs.
According to the Fed’s latest projections, policymakers still anticipate cutting rates twice later this year. However, officials acknowledged the heightened volatility introduced by Trump’s economic agenda, including trade tariffs, immigration enforcement, workforce reductions and fiscal policy changes.
“The Fed’s decision to hold rates reflects a wait-and-see approach amid a highly uncertain policy environment,” the statement said. “Officials are closely monitoring inflation developments and economic activity before taking further action.”
The Fed’s economic outlook suggests slower-than-expected growth and higher inflation for the remainder of the year -- a combination that could move the economy toward a period of stagflation, a scenario not seen since the 1970s.
“All 12 voting members supported the decision to keep rates unchanged,” though Fed Gov. Christopher Waller dissented on a separate measure to decelerate the reduction of the central bank’s balance sheet.
A central concern is the broad range of possible outcomes resulting from Trump’s initiatives. While deregulation and extended tax cuts may boost growth, tariffs and labor shortages from immigration enforcement could dampen it. The potential economic consequences, both positive and negative, have created an unusually high level of ambiguity for policymakers.
“Trump’s policies remain a huge wild card for the Fed because of their potentially wide-ranging effects on the economy,” the statement noted.
Although the U.S. labor market remains solid -- with unemployment at 4.1% and employers adding 151,000 jobs in February -- consumer and business sentiment has grown more pessimistic. The University of Michigan’s latest consumer survey indicated that Americans are bracing for sustained inflation in the coming years.
Should long-term inflation expectations continue to rise, the Fed may be forced to reconsider its rate strategy. A similar scenario occurred in 2018, during Trump’s initial trade war, when rising inflation expectations prompted policymakers to consider rate hikes, as noted in the Fed’s “teal book” of policy alternatives.
Chair Jerome Powell emphasized earlier this month that the central bank’s decisions will be driven by actual economic data, not forecasts. With conflicting signals emerging from inflation reports, consumer behavior and employment trends, Fed officials are likely to remain cautious in their next steps.
