The Federal Reserve on Wednesday voted to hold interest rates steady while Chairman Jerome Powell warned that tariffs and trade wars are creating inflationary pressures.
“If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” Powell said at a news conference.
Powell also said that the economic picture in the United States is unclear. He said he does not know “which way this will shake out” whether to be concerned or not about U.S. economic growth.
“It’s really not at all clear what it is we should do,” said Powell.
The Fed’s vote on Wednesday will keep interest rates at 4.25 percent to 4.5 percent, where they have remained since December after some cuts to interest rates last year.
President Donald Trump has placed tariffs on dozens of countries, focusing particularly on top U.S. trading partners Canada, China, and Mexico. The tariffs and the White House messaging around them has sent the stock market into chaos at points over the past couple of months.
While Canada and Mexico have negotiated with the Trump administration over immigration, drug trafficking, and other issues, Beijing has ratcheted up tensions with Washington. Talks between China and the United States have not yet started, though Treasury Secretary Scott Bessent said Tuesday that a date had been set for U.S. officials to meet with officials from Beijing.
“I was going to be in Switzerland to negotiate with the Swiss. Turns out, the Chinese team is traveling through Europe and they will be in Switzerland also. So, we will meet on Saturday and Sunday,” the treasury secretary said.
While tariff talk has spooked markets, Trump has pursued a business-friendly deregulatory agenda and promised an extension of his 2017 tax cuts.
“We are making great progress on ‘The One, Big, Beautiful Bill.’ Our Economy is doing well, but it’s going to BOOM in a way never seen before,” Trump said in a Truth Social post on Wednesday. “We are going to do NO TAX ON TIPS, NO TAX ON SENIORS’ SOCIAL SECURITY, NO TAX ON OVERTIME, and much more. It will be the biggest Tax Cut for Middle and Working Class Americans by far, and it is time for Main Street to WIN. MAKE AMERICA GREAT AGAIN!”
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