The Federal Reserve kept its main interest rate the same on Wednesday, ignoring President Donald Trump's requests to lower costs for borrowing money. They also said that the chances of both more people being out of work and prices going up faster have increased. This is an unusual situation that makes things difficult for the central bank.

The Federal Reserve maintained its interest rate at 4.3% for the third consecutive meeting, having implemented three successive cuts late last year. While numerous economists and Wall Street analysts anticipate rate reductions this year, the extensive tariffs introduced by Trump have introduced considerable unpredictability into the U.S. economy and the central bank's future actions.

During a press conference following the policy statement's release, Chair Jerome Powell emphasized that the tariffs had subdued consumer and business confidence but had not yet perceptibly damaged the economy. Presently, Powell stated, the prevailing uncertainty prevents a definitive assessment of how the Fed ought to respond to the 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 increase. He added that the effects could be temporary or last for a longer time.

It's not common for the Federal Reserve to worry about both higher prices and more people losing their jobs at the same time. Usually, prices go up when people are spending a lot and companies can't keep up, so they charge more, like after the pandemic. On the other hand, more unemployment happens when the economy is weaker, which usually means people spend less and prices don't go up as much.

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

However, many economists say that Trump's tariffs could cause stagflation. These import taxes might increase inflation because imported parts and goods become more expensive. At the same time, they could also increase unemployment because companies might cut jobs when their costs go up.

The Federal Reserve is tasked with maintaining price stability and maximizing employment. Typically, in response to escalating inflation, the Fed hikes interest rates to curb borrowing and expenditure, thereby mitigating inflationary pressures. Conversely, should unemployment figures rise, the central bank would reduce rates to stimulate greater spending and foster economic expansion.

Earlier this year, experts and people who invest thought the Federal Reserve would cut its main interest rate a couple of times because inflation after the pandemic was going down. Some economists also believe the Fed should cut rates early because of possible slower growth and more people losing jobs due to tariffs. However, Powell strongly stated that since the economy is doing well right now, the Fed can wait and see.

Numerous analysts previously anticipated a "soft landing" for the economy, where inflation would recede to its 2% target while unemployment remained low amidst robust growth.

However, on Wednesday, Powell indicated that achieving this objective was improbable.

"If the tariffs are finally set at those levels, then we won't make more progress towards our goals," Powell said. "At least for the next year, we wouldn't be making progress towards those goals, depending on how the tariffs turn out."

Powell further indicated that the subsequent policy decision by the Federal Reserve would be contingent, in part, on whether inflation or unemployment showed the most significant deterioration.

The outcome of events will determine if we lower interest rates or keep them the same; we need to see what happens before we decide.

According to Krishna Guha, an analyst at EvercoreISI, the Federal Reserve's evaluation of present economic circumstances probably postpones the expected timing for a reduction in interest rates. "The blend of assessing risks from multiple angles and describing the economy as robust indicates that the Federal Reserve is not inclined to prepare for a rate cut in June at this specific moment," Guha stated. A significant number of economists believe the Federal Reserve might not be prepared to implement a rate cut until September.

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

The central bank’s prudent approach may exacerbate tensions between the Federal Reserve and the Trump administration.

When asked at the press conference if Trump's requests for lower interest rates affected the Federal Reserve, Powell said, "It doesn't change how we do our work at all. We will always only think about the economic information, the future situation, and the possible problems, and nothing else."

A reduction in interest rates by the Federal Reserve could potentially decrease other borrowing expenses, such as those for mortgages, vehicle financing, and credit card debt, although this outcome is not assured.

A major problem for the Fed is how tariffs will affect inflation. Most economists and Fed officials think the import taxes will raise prices, but they are not sure by how much or for how long. Tariffs usually cause prices to go up once, but not necessarily continuous inflation.

Presently, the U.S. economy largely remains robust, with inflation having subsided substantially since its zenith in 2022. Consumer spending is vigorous, albeit potentially influenced by preemptive purchases of goods such as automobiles ahead of impending tariffs. Simultaneously, businesses continue to expand their workforce consistently, maintaining a low unemployment rate.

Nevertheless, indicators suggest inflation will intensify in the near future; surveys of manufacturers and service providers reveal escalating supplier costs, and a Federal Reserve survey indicated over half of manufacturing firms anticipate transferring the burden of tariff hikes to consumers.