Fed holds rates steady amid turmoil

It sees more inflation, lower growth ahead

- COLBY SMITH

The Federal Reserve held interest rates steady 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 1 percentage point. In the months since, officials have maintained a “wait-and-see” stance, seeking greater clarity on how President Donald 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% to 4.5%, shows that this approach still holds at a time when there is still vast uncertainty about which countries will be tariffed and at what rate; 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.

Still, the Fed said in a statement Wednesday that uncertainty about the economic outlook had “diminished but remains elevated.”