Federal Reserve keeps interest rate unchanged amid economic concerns, flags inflation risk

The U.S. Federal Reserve had kept rates unchanged during the March meeting as well.

The Federal Reserve held interest rates steady at 4.25 percent to 4.5 percent. The central bank also sounded concerns over economic uncertainties. "The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated," said the Federal Reserve, in a statement.

"The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen," the statement further added.

In a press conference following the decision, the Fed Chair said, "The risk of higher inflation and higher inflation have risen."

Given the persistent geopolitical uncertainties and trade-related volatility, the U.S. Federal Reserve has kept the federal funds effective rate unchanged since December 2024, despite concerns of slowing economic growth.

Even ahead of the meeting, experts suggested that the U.S. central bank might not choose to cut rates. According to the CME FedWatch tool, nearly 100 percent of market participants did not expect any change in the key lending rate. Instead, they expect the central bank to continue its wait and watch stance as U.S. President Donald Trump's 90-day pause on tariffs for trading partners remains in effect.

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The Federal Reserve has taken stringent efforts to maintain policy independence amid the growing clamor for a cut in the benchmark rate.

President Trump said that Fed Chair doesn't want to cut rates "because he’s not a fan of mine. You know, he just doesn’t like me because I think he’s a total stiff.”

Given the tariff-related flip-flops seen from the Trump administration, the Federal Reserve has avoided cutting rates, as assessing the impact of tariffs on inflation remains challenging.

International brokerages Barclays and Goldman Sachs are penciling in a rate cut in July, with Goldman Sachs seeing three cuts for the year. “It will take a couple of months for enough hard data evidence to accumulate to make the case for a cut,” said David Mericle, economist at Goldman Sachs, in a note to clients.

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