US Fed holds rates again and flags increased economic uncertainty / Photo: ANDREW CABALLERO-REYNOLDS - AFP
US Fed holds rates again and flags increased economic uncertainty
The US Federal Reserve paused interest rate cuts again on Wednesday and noted an increase in economic uncertainty, as it navigates an economy unnerved by President Donald Trump's stop-start tariff rollout.
Policymakers voted to hold the US central bank's key lending rate at between 4.25 percent and 4.50 percent, the Fed announced in a statement.
They also cut their growth forecast for 2025 and hiked their inflation outlook, while still penciling in two rate cuts this year -- in line with their previous forecast in December.
The Fed's vote was not unanimous, with one governor rebelling in opposition to his colleagues' decision to slow the pace at which the Fed shrinks the size of its balance sheet.
Since taking office in January, Trump has ramped up levies on top trading partners including China, Canada and Mexico -- only to roll some of them back -- and threatened to impose reciprocal tariffs on other countries.
Many analysts fear Trump's economic policies could push up inflation and hamper economic growth, and complicate the Fed's plans to bring inflation down to its long-term target of two percent while maintaining a healthy labor market.
"It's quite unclear how high the tariffs will get, how widespread they will be, and how long they will last," former Boston Fed president Eric Rosengren told AFP ahead of the rate decision. "And it's very hard to estimate what the impact on inflation or unemployment is going to be until they get a little more visibility into that."
- Slowing economy -
Until recently, the hard economic data had pointed to a fairly robust American economy, with the Fed's favored inflation measure showing a 2.5 percent rise in the year to January -- above target but down sharply from a four-decade high in 2022.
Economic growth was relatively robust through the end of 2024, while the labor market has remained fairly strong, with healthy levels of job creation, and an unemployment rate hovering close to historic lows.
But the mood has shifted in the weeks since Trump returned to the White House, with inflation expectations rising and financial markets tumbling amid the on-again, off-again rollout of tariffs.
Against that backdrop, Fed policymakers tweaked their economic forecasts. While they still have two rate cuts penciled in this year and next, they have revised other data points.
They now expect economic growth to increase by 1.7 percent this year, and by 1.8 percent next year -- a sharp decline from the last economic outlook in December.
They also raised their outlook for inflation in 2025 and 2026, and nudged up their forecast for the unemployment rate.
- 'Disaster' -
While Fed officials have sought to avoid criticizing the new administration, some analysts have been less restrained.
"US President Donald Trump's management of economic policy has been a disaster," Michael Strain, the director of economic policy studies at the conservative American Enterprise Institute, wrote in a recent blog post.
"Fed officials want to be careful not to overreact," Nationwide chief economist Kathy Bostjancic told AFP ahead of the rate decision, adding she expects the Fed to ultimately make just one rate cut this year.
"There's so much uncertainty," she said, adding that she hoped to have more clarity on the US economy after the planned rollout of Trump's retaliatory tariffs on April 2.
Fed chair Jerome Powell will address reporters later Wednesday, and is expected to face questions about how the Fed will chart a path through the ongoing turbulence caused by the rollout of Trump's economic policies.
P.Batteux--RTC
