The Federal Reserve kept its main interest rate the same on Wednesday. They did not listen to President Donald Trump, who wanted them to lower borrowing costs. They also said that the chances of both more people losing their jobs and prices going up faster have increased. This mix is unusual and makes things difficult for the central bank.

Following three consecutive reductions late last year, the Federal Reserve maintained its interest rate at 4.3% for the third consecutive meeting. While numerous economists and Wall Street analysts anticipate interest rate cuts later this year, the significant tariffs implemented by Trump have introduced considerable unpredictability into the US economy and the central bank's strategies.

In a press conference following the policy statement's release, Chair Jerome Powell emphasized that the tariffs have negatively impacted consumer and business confidence, though they have not yet caused significant economic damage. Currently, Powell indicated, the level of uncertainty precludes a definitive statement on how the Federal Reserve should respond to these duties.

Powell said that if the big increases in tariffs that have been announced continue, they will probably cause inflation to rise, economic growth to slow down, and unemployment to go up. He added that these effects could be short-term or last longer.

It is atypical for the Federal Reserve to confront the twin threats of rising prices and increased unemployment simultaneously. Generally, inflationary pressures emerge when consumer spending is robust and businesses, unable to fully satisfy the surge in demand, resort to price hikes, as observed in the post-pandemic period. Conversely, a rise in unemployment typically signals a weaker economic climate, which ordinarily dampens spending and exerts downward pressure on inflation.

When high unemployment happens at the same time as rising prices, it's often called "stagflation." This situation worries central bankers a lot because it's hard for them to fix both problems at once. The last time this happened for a long time was in the 1970s during the oil crises and economic problems.

However, many economists believe that President Trump's wide-ranging tariffs could lead to stagflation. These import taxes might increase inflation because imported parts and goods become more expensive, and at the same time, they could cause unemployment as companies might cut jobs to manage higher costs.

The Federal Reserve's main goals are to keep prices steady and have as many people employed as possible. Usually, when prices go up quickly (inflation), the Fed increases interest rates to make borrowing and spending slower and reduce inflation. On the other hand, if companies start laying off many workers, the Fed would lower rates to encourage more spending and economic growth.

At the start of the year, experts and investors thought the Fed would lower its main interest rate a few times this year because the rise in prices after the pandemic was slowing down. Some economists also believe the Fed should cut rates now because they expect slower economic growth and more people losing their jobs due to the tariffs. However, Powell was firm that since the economy is doing well for now, the Fed can wait and see.

Months prior, numerous analysts likewise anticipated the economy would manage a "soft landing," where inflation would ultimately revert to its 2% objective, whilst unemployment remained low amidst robust growth.

However, on Wednesday, Powell suggested that achieving that outcome had become improbable.

If the tariffs are finally put in place at those levels, then we won't see more progress towards our goals, Powell said. He added, 'For at least the next year, we wouldn't be making progress towards those goals, if that's how the tariffs turn out.'

Powell also mentioned that the Fed's next step will partly depend on whether inflation or unemployment gets worse.

"The potential scenarios encompass interest rate reductions or maintaining the current level; we require further developments before making those determinations," he stated.

Krishna Guha, an analyst at EvercoreISI, indicated that the Federal Reserve's assessment of prevailing economic conditions probably postpones the timeline for a rate reduction. He stated that the confluence of evaluating risks from both perspectives and describing the economy as robust implies the Fed is not aiming to signal a June rate cut at this moment. Many economists anticipate the Fed might not be prepared to lower rates until September.

In April, Trump unveiled extensive tariffs targeting approximately 60 U.S. trading partners, subsequently suspending the majority for 90 days, with the notable exception of duties imposed on China. The administration has subjected Chinese goods to a substantial 145% tariff. 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 measured approach may exacerbate tensions between the Federal Reserve and the Trump administration; President Trump reiterated his call for interest rate cuts on Sunday, and while he has retracted threats to dismiss Powell, he may revisit the possibility should the economy falter.

When asked at the press conference if Trump's requests for lower rates influenced the Fed, Powell said, "It doesn't change how we do our job. We will only consider the economic information, the future situation, and the possible risks, and that is all."

Should the Federal Reserve implement a rate reduction, it could potentially decrease other borrowing expenses, like those for mortgages, auto loans, and credit cards, although this outcome is not assured.

A key concern for the Federal Reserve is assessing the inflationary impact of tariffs; while most economists and officials anticipate an increase in prices due to these import taxes, the magnitude and duration of this effect remain uncertain, as tariffs typically lead to a singular price hike rather than persistent inflation.

At present, the U.S. economy appears largely robust, with inflation having receded significantly from its high point in 2022. Consumer expenditure remains buoyant, although this could be partly attributed to anticipatory purchases of items such as vehicles before the imposition of tariffs. Furthermore, businesses continue to expand their workforce at a consistent rate, maintaining a low level of unemployment.

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 their suppliers are charging them more. Also, a survey by the Federal Reserve in Dallas found that almost 55% of manufacturing companies think they will pass the cost of tariff increases on to their customers.