US Fed likely to keep rates steady as Donald Trump uncertainty flares

The US Federal Reserve is widely expected to keep interest rates unchanged at its policy meeting this week, treading carefully amid uncertainty over President Donald Trump's economic policies, which include spending cuts and sweeping tariffs.

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Since January, Trump has imposed levies on major trading partners Canada, Mexico and China, and on steel and aluminium imports, roiling financial markets and fanning fears that his plans could tip the world's biggest economy into a recession.

The Trump administration has also embarked on unprecedented cost-cutting efforts that target staff and spending, while the president has promised tax reductions and deregulation down the road.

But Fed Chair Jerome Powell emphasized this month that it is the "net effect" of policy changes that will matter for both the economy and monetary policy.

Analysts widely expect the central bank to hold the benchmark lending rate steady at 4.25 per cent to 4.50 per cent, after similarly doing so in January.

"Recent Fed commentary has reinforced a wait-and-see approach, with officials signaling little urgency to adjust policy as they assess the economic impact of recent policy shifts," said EY chief economist Gregory Daco.

Powell himself has said that policymakers are focused on separating signal from noise as the outlook evolves.

"We do not need to be in a hurry, and we are well positioned to wait for greater clarity," the Fed chief added in a recent speech in New York.

Economist Michael Pearce at Oxford Economics said he expects the Fed will not want to "over-react" to early signs that inflation may pick up, or to indications that the economy is weakening more quickly than anticipated.