The U.S. Federal Reserve held its benchmark interest rate steady for a fourth consecutive meeting Wednesday, forecasting higher inflation and weaker growth this year as President Donald Trump’s tariffs begin to take hold and geopolitical uncertainty persists.
At the conclusion of its two-day policy meeting, the central bank kept the key lending rate in a range between 4.25% and 4.50%, while signaling two rate cuts are still expected before the end of the year—matching its March projection. In a statement, the Fed said that “uncertainty about the economic outlook has diminished but remains elevated.”
Officials now expect inflation, as measured by the Fed’s preferred gauge, to rise to 3% by year’s end, up from 2.1% in April. They also project the unemployment rate will increase to 4.5%, from the current 4.2%, while economic growth slows to 1.4%, down from 2.5% in 2024.
The Fed’s new quarterly projections reflect a noticeably gloomier economic outlook than those released in March, prior to Trump’s April 2 announcement of sweeping tariffs—most of which were postponed on April 9. The central bank now anticipates only one interest rate cut in 2026, down from the two cuts previously expected.
Despite the bleaker forecasts, Fed Chair Jerome Powell and other officials emphasized caution in adjusting policy rates amid continued uncertainty. Powell noted that the full impact of the tariffs remains unclear, and several policymakers have expressed concern that the duties could drive another spike in inflation, only a few years after the worst inflation surge in four decades.
While the Fed maintained its benchmark rate, which affects borrowing costs on mortgages, auto loans, credit cards and business loans, Powell said the economy continues to expand at “a solid pace.”
