Fed keeps rates unchanged, points to increased risks to employment and prices

The US Federal Reserve ( Fed ) unanimously decided to leave its rates unchanged on Wednesday, saying it was unable to predict where the American economy would go from here, faced with the earthquake of new customs duties.

There is "so much uncertainty" surrounding the impact of these new import taxes that the Fed is choosing not to budge on rates for now, the president of the institution declared at a press conference. "If the tariff increases that have been announced continue, this risks leading to higher inflation, slower economic growth and higher unemployment," Jerome Powell also stated.

It would be a "difficult scenario" for the Fed, he said, to see unemployment rise along with prices. To curb inflation, a central bank typically raises its key interest rates, which guide the cost of credit for businesses and individuals. Conversely, if jobs are destroyed, it is supposed to lower them to boost economic activity.

This status quo on interest rates (in a range of between 4.25% and 4.50% since December) was widely expected by the markets. The New York Stock Exchange moved in a see-saw pattern, in line with Jerome Powell's comments, ultimately maintaining the direction it had taken before the Fed's announcement. Around 9:10 p.m., the Dow Jones Industrial Average was up 0.70%, the Nasdaq index was down 0.25%, and the broader S&P 500 index was up 0.12%.

Since the last Federal Reserve meeting in March, President Donald Trump has unleashed an economic earthquake. On what he himself dubbed "Liberation Day," April 2, the U.S. president erected a wall of new tariffs on imported goods.

Donald Trump has since partially backtracked and promised "deals" with the United States' major partners to ease the bill. None have yet been announced. Customs duties are now much higher than before the start of his second term, and trade with China has virtually ground to a halt. American and Chinese officials are meeting this weekend in Switzerland to lay the groundwork for negotiations.

The conclusion of trade agreements could "change the game significantly or not," Jerome Powell said. The central bank thus concluded two days of conclave with the cardinal principle of remaining glued to the economic data and avoiding any hasty decisions. Regular economic barometers show growing nervousness, as do business communications. However, official indicators have not derailed: 4.2% unemployment in April, 2.3% inflation year-on-year in March, slightly above the Fed's target.

The first-quarter GDP, released last week, nevertheless served as a wake-up call, with a decline of 0.3% at an annualized rate. The Fed chose to dismiss this data, as it primarily reflected a surge in imports over the period. Businesses and households had indeed sought to get ahead of the new tariffs.

Beyond this highly changing context, the Fed—and especially its chairman—face repeated criticism from Donald Trump, who wants to see rates lower, which would have the merit of somewhat cushioning the impact of tariffs, at the risk of fueling inflation. The president's statements "do not affect our work at all," Powell assured. "We always consider," he added, "only the economic data, the outlook, the balance of risks, and that's it. So it really doesn't affect our work or the way we do it."