US Federal Reserve keeps interest rates unchanged at 4.5%

The Federal Reserve held interest rates steady again on Wednesday as officials continue to monitor the fallout from President Donald Trump’s sweeping policy changes and escalating tensions in the Middle East.

The central bank kept its benchmark lending rate unchanged at a range of 4.25 percent to 4.5 percent, where it has remained since January. Economists widely expect that Trump’s unpredictable trade war will drive up prices and eventually lead to higher unemployment.

So far, tariffs have caused a surge in imports to the US, weighing on economic growth. However, inflation has stayed relatively tame, and the labor market remains fairly strong. Still, Fed officials do not expect this trend to continue. New economic projections reveal that officials now anticipate unemployment to rise more this year than previously estimated in March, and they expect inflation to increase more than earlier predicted.

Overall, Fed policymakers still foresee two interest rate cuts this year, based on the median projection. However, seven officials now predict no rate cuts at all, up from four in March.

When the Fed eventually opts for a rate cut, it will likely be in response to rising unemployment, a scenario investors call a “bad news rate cut.” Economists warn that American consumers and businesses are beginning to feel the impact of Trump’s tariffs, with early signs of cautious consumer spending.

Retail sales, which make up a significant portion of overall spending, fell sharply last month, driven largely by a plunge in car purchases. This is a crucial indicator, as consumer spending accounts for about two-thirds of the US economy.