Fed leaves rates unchanged as Powell warns on tariffs

What happened

The Federal Reserve voted unanimously Wednesday to keep interest rates unchanged, disregarding President Donald Trump's demands for lower borrowing costs as his global trade war roils the U.S. and global economies.

Who said what

Trump's "large increases in tariffs," if "sustained," are "likely to generate a rise in inflation, a slowdown in economic growth and a rise in unemployment," Fed Chair Jerome Powell said at an afternoon press conference. But "the scope, the scale, the persistence of those effects are very, very uncertain." The "unusual" combination of "higher prices and more unemployment" is "often referred to as 'stagflation,'" The Associated Press said, and it "strikes fear in the hearts of central bankers."

If unemployment rises, the Fed can cut rates, while rising inflation is usually countered by raising borrowing costs. Powell's comments were his "subtle way of saying the U.S. central bank" was "effectively sidelined until Trump's sweeping policy agenda takes full effect," Reuters said. He "used some version of the word 'wait' 22 times to underscore how the Fed isn't in a rush" to "cushion economic weakness" from Trump's tariffs, The Wall Street Journal said.

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What next?

"We're all kind of waiting around expecting a slowdown in the economy," William English, a Yale business professor and former Fed adviser, told the Journal, but the "hard data" is not showing it yet. "We're in a good position to wait and see," Powell said, and "respond in a timely way" when the data arrives.