Fed Holds Rates Steady, but Sees Higher Inflation and Lower Growth Ahead

A line chart of the federal funds target rate range which the Fed left unchanged at 4.25 percent to 4.5 percent.

The Federal Reserve held interest rates steady on Wednesday as expected, but new projections released alongside the decision showed officials are extremely divided about how significantly they will be able to lower borrowing costs this year as they brace for inflation to rise sharply as growth tumbles.

The central bank paused interest rate reductions in January following a series of cuts in late 2024 that lowered borrowing costs by a percentage point. In the months since, officials have maintained a “wait-and-see” stance, seeking greater clarity on how President Trump’s policies will affect the economy before making any major policy moves.

Wednesday’s unanimous decision, which kept interest rates at a range of 4.25 percent to 4.5 percent, shows that this approach still holds at a time when there is vast uncertainty. That includes questions about which countries will face Mr. Trump’s tariffs and how punishing those rates may be; how expansive the administration’s immigration crackdown will be, and whether Republicans will be able to slash taxes and cut spending as their bill making its way through Congress intends.

The Fed now must also contend with an escalating conflict between Israel and Iran, which has further clouded the economic outlook.

Jerome H. Powell, the Fed chair, conveyed little urgency in a news conference on Wednesday for the central bank to change its approach at this juncture. While he acknowledged that the labor market had cooled off, he made clear that he saw “nothing that’s troubling at this time.”

“The labor market is not crying out for a rate cut,” he added at one point. At the same time, Mr. Powell said there was broad expectation that tariffs would soon bid up inflation meaningfully in the coming months.