The Federal Reserve has held interest rates steady, but said it still plans to cut them twice later in 2025.

Authorities have highlighted that inflation remains unchecked. They have also adjusted growth predictions downwards, attributing the changes to Trump’s policies such as tariffs.

The central bank’s decision keeps the benchmark rate between 4.25 percent and 4.5 percent, as analysts expected. 

Powell indicated that, despite fears of inflation caused by tariffs, the Fed would stick to its plan to cut rates twice this year.

That pleased investors, and sent US stock indexes up in afternoon trading, with the S&P 500 rising more than one percent. That helps 401(K)s, which have been battered by sharp declines in share prices in recent weeks.   

Lower rates make it cheaper for businesses to borrow money but crucially it also cuts borrowing costs for ordinary Americans, who then have more to spend on goods and services. 

While the Fed rate does not directly affect rates for loans, credit cards and mortgages, it strongly influences them. 

‘We do not need to be in a hurry to adjust our policy stance,’ Powell said in comments made after the rate announcement.  

Fed officials marked up their outlook for inflation this year, with their preferred measure of price increases expected to end the year at 2.7 percent versus the 2.5 percent anticipated in December. Both are above the central bank´s 2 percent target.

As well as rising inflation forecasts, the central bank now sees economic growth slowing more than previously expected. 

The Fed also expects the unemployment rate to tick higher, to 4.4 percent, by the end of this year.   

The projections underscore the tight spot the Fed may find itself in this year: Higher inflation typically would lead the Fed to keep its key rate elevated, or even raise rates. 

On the other hand, slower growth and higher unemployment would often cause the Fed to cut rates to spur more borrowing and spending and lift the economy.    

It is the second meeting in a row that the Fed has kept its interest rate at about 4.3% as the central bank has moved to the sidelines as it evaluates the impact of the Trump administration´s policies on the economy. 

Economists forecast that tariffs will likely push up inflation, at least temporarily. But other policies, such as deregulation, could lower costs and cool inflation. 

Powell said rising inflation expectations is in ‘good part’ due to tariffs as a ‘driving factor’. 

President Trump’s tariff headlines sent the S&P 500 into correction territory last week. That is when stocks fall more than 10 per cent from their highs. 

Explaining the Fed’s ‘wait and see’ decision Powell said the new administration’s policy changes in trade, immigration, fiscal policy and regulation will have a combined impact on the economy.

‘It’s the net effect of these policy changes that’ll matter for the economy and for the path of monetary policy’ Powell said.

The combination of higher inflation and slowing growth could lead to a dreaded period of stagflation.

Economists have ramped up warnings a recession may be looming as Americans fall behind on auto loans and consumers long-term expectations for inflation soared to the highest levels since the 1990s

Fed officials are closely watching measures of Americans’ inflation expectations, which spiked in one survey released just last week. 

Inflation expectations – essentially a measure of how worried people are that inflation will get worse – are important to the Fed because they can be self-fulfilling. 

If people expect higher inflation, they may take steps, such as accelerating purchases, that can push prices higher.

Retailers of both high-end and lower-cost goods have warned that consumers are turning more cautious as they expect prices to rise because of tariffs. Retail sales rose modestly last month after a sharp fall in January.