U.S. Federal Reserve holds interest rate, sees slower economic growth ahead

The Federal Reserve kept its benchmark interest rate unchanged Wednesday and signaled that it still expects to cut rates twice this year.

The United States Federal Reserve kept its benchmark interest rate unchanged Wednesday and signaled that it still expects to cut rates twice this year, though it said the outlook is more uncertain.

The Fed also now expects the economy to grow more slowly this year and next than it did three months ago, according to a set of quarterly economic projections also released Wednesday. It also expects the unemployment rate to tick higher, to 4.4 per cent, by the end of this year. Policymakers also expect inflation will pick up slightly this year, to 2.7 per cent from its current level of 2.5 per cent. Both are above the central bank’s two per cent target.

“Uncertainty around the economic outlook has increased,” the Fed said in a statement released after its two-day meeting.

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 per cent 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.

At a news conference, Chair Jerome Powell said that there were signs the tariffs imposed so far may have pushed up the cost of imported goods. Inflation had been heading back to the Fed’s two per cent goal, but that may now take longer with the tariffs, he said.

“I do think with the arrival of tariff inflation, further progress is probably delayed,” Powell said.

Powell acknowledged that many surveys of businesses and consumers have showed rising concern about the economic outlook. Yet he noted that the unemployment rate remains low and the economy is still expanding.