Fed Chair warns of rising economic risks

The Federal Reserve warned that tariffs were raising risks of higher unemployment and higher inflation when officials unanimously agreed to hold interest rates steady on Wednesday.

Jerome Powell, the US central bank’s chair, cautioned that the president’s tariffs were likely to raise prices, weaken growth and increase unemployment if maintained. Fed policymakers cautioned that “the risks of higher unemployment and higher inflation have risen” as they opted to maintain the benchmark interest rate for the third time in a row.

“Uncertainty about the economic outlook has increased further,” they said in a statement. With inflation expectations – how consumers think prices will move – rising,Powell, the Fed chair, said the “driving factor” appeared to be Trump’s tariffs.

At a press conference, he said: “If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”

The US president has repeatedly demanded in recent months that the Fed cuts rates – and even raised the prospect of firing Powell, before walking back the comments – as Trump’s tariffs plan appeared to knock the US economy.

The Fed has been sitting on its hands for months, however, citing heightened uncertainty. It last cut rates in December, to a range of between 4.25% and 4.5%. After Fed policymakers finished their latest two-day meeting on Wednesday, the central bank reiterated in its statement that they would “carefully assess incoming data, the evolving outlook, and the balance of risks” ahead of future meetings.

Addressing reporters after the meeting, Powell said he could not provide a timeframe for rate cuts. “We are going to need to see how this evolves,” he said. “There are cases in which it would be appropriate for us to cut rates this year. There are cases in which it wouldn’t. And we just don’t know.”

Because President Trump is unpredictable, the direction the US and world economy go still remain to be seen.