The Federal Reserve did not change its main interest rate on Wednesday, ignoring President Donald Trump's requests to make borrowing cheaper. They also said that the chances of both more people being jobless and prices going up have increased. This is not common and makes the central bank's situation difficult.

The Federal Reserve maintained its interest rate at 4.3% for the third consecutive meeting, following three successive reductions towards the end of the previous year. While numerous economists and Wall Street investors anticipate rate cuts later this year, the extensive tariffs implemented by Trump have introduced considerable unpredictability into the US economy and influenced the central bank's policy decisions.

During a press conference following the policy statement's publication, Chair Jerome Powell highlighted that the tariffs have subdued consumer and business confidence but have not yet significantly damaged the economy. Currently, Powell stated, there is excessive uncertainty to determine the appropriate Federal Reserve response to the duties.

Powell stated that maintaining the substantial tariff hikes that have been declared would probably lead to higher inflation, slower economic expansion, and increased unemployment, adding that these effects could be either short-lived or more enduring.

It is uncharacteristic for the Federal Reserve to confront the dual threats of escalating inflation and rising unemployment. Generally, inflationary pressures emerge when robust consumer spending outpaces the capacity of businesses to satisfy demand, leading them to increase prices, a phenomenon observed in the post-pandemic period. Conversely, a downturn in the economy, marked by increased unemployment, tends to curb expenditure and moderate inflation.

When both unemployment is high and inflation is rising quickly, it's often called "stagflation." This situation worries central bankers a lot because it's difficult for them to fix both problems at the same time. The last time this happened for a long period was during the oil crises and economic problems of the 1970s.

However, many economists believe that Trump's wide-ranging tariffs could lead to stagflation. These taxes on imports might cause prices to go up because imported parts and goods become more expensive. At the same time, they could also increase job losses as companies cut staff because their costs are higher.

The Federal Reserve aims to ensure price stability and foster maximum employment; generally, as inflation escalates, the Fed increases interest rates to temper borrowing and expenditure and curb inflationary pressures, whereas if job losses increase, it would lower rates to stimulate greater spending and economic expansion.

Earlier in the year, many experts and investors anticipated the Federal Reserve would lower its benchmark interest rate two or three times, given the continued decline in post-pandemic inflation. Some economists also contend the Fed ought to implement cuts proactively, foreseeing a deceleration in growth and an increase in unemployment stemming from tariffs. However, Powell steadfastly maintained that, with the current robust state of the economy, the Fed is in a position to adopt a passive stance.

Several months prior, numerous analysts also anticipated the economy would attain a “soft landing,” wherein inflation would eventually recede to its target of 2%, while unemployment would persist at a low level amidst robust growth.

However, on Wednesday, Powell indicated that outcome was improbable.

"Should the tariffs ultimately be enacted at those levels... we will not witness further progress toward our objectives," Powell stated. "For at least the forthcoming year, we would not be advancing toward those goals -- again, if that is how the tariff situation unfolds."

Powell also stated that the Fed's next action will partly depend on whether inflation or unemployment gets worse more.

He said that depending on how the situation develops, they might lower interest rates or keep them the same, and they need to wait and see what happens before deciding.

Krishna Guha, an analyst at EvercoreISI, said the Federal Reserve's view of the current situation likely means they will cut rates later. He explained, "Looking at risks from both sides and saying the economy is strong suggests the Fed is not planning a June cut now." Many economists believe the Fed might not be ready to cut rates until September.

In April, Trump unveiled extensive tariffs targeting approximately 60 U.S. trading partners, subsequently suspending the majority for 90 days, excluding those imposed on China. The administration has levied a 145% tariff on Chinese goods. The two nations are slated to conduct their initial high-level discussions since Trump initiated the trade dispute this weekend in Switzerland.

The central bank's careful approach might cause more disagreement between the Federal Reserve and the Trump administration. For example, on Sunday, Trump repeated his request for the Fed to lower interest rates in a television interview. Although he has stopped openly threatening to fire Powell, he might think about it again if the economy struggles in the next few months.

At the press conference, when asked if Trump's requests for lower rates affected the Fed, Powell said, "It doesn't change how we do our job. We will always only think about the economic information, the future possibilities, and the possible dangers, and nothing else."

A reduction in the Federal Reserve's interest rates has the potential to decrease other borrowing expenses, such as those associated with mortgages, auto loans, and credit cards, although this outcome is not definitively assured.

A big problem for the Federal Reserve is how tariffs will affect inflation. Most economists and Fed officials think the import taxes will make prices go up, but they are not sure by how much or for how long. Tariffs usually cause prices to rise once, but not necessarily cause inflation that continues.

Presently, the U.S. economy largely remains in a robust state, with inflation having significantly moderated from its 2022 high point. Consumer spending continues at a healthy rate, although this could partially be attributed to purchases of items such as vehicles in anticipation of forthcoming tariffs. Businesses are consistently expanding their workforces, and the unemployment rate is currently low.

However, there are signs that inflation will get worse in the next few months. Surveys of companies that make things and companies that provide services show that they are paying more to their suppliers. Also, a survey by the Federal Reserve in Dallas found that almost 55% of manufacturing companies expect to make their customers pay for the higher costs caused by tariffs.