Morning Rundown: Travel chaos as Heathrow shuts down, federal workers stuck in rehiring limbo, and a women’s sports bar boom
Profile
Sections
Local
tv
Featured
More From NBC
Follow NBC News
news Alerts
There are no new alerts at this time
The Federal Reserve said Wednesday it was leaving interest rates unchanged — but warned of rising uncertainty about the direction of the economy, in part because of President Donald Trump’s tariff agenda.
The Fed said its key federal funds rate, which serves as a benchmark for interest rates throughout the economy, would remain at about 4.5%.
Though it said current economic conditions were solid, the central bank lowered its forecast for gross domestic product, a measure of the total value of all goods and services produced within the United States, for the rest of the year, to 1.7%, down from 2.1% in December. It also warned that a key measure of inflation would now be closer to 3% than 2%.
Eighteen of 19 policymakers now say there’s increased risk that GDP will fall, compared with just five in December. Meanwhile, 11 policymakers say the unemployment rate could climb to as much as 4.5% this year, up from five previously.
“Uncertainty around the economic outlook has increased,” the Fed’s statement said.
At a news conference after the statement was released, Fed Chair Jerome Powell said the dynamic between Trump’s tariffs and stronger near-term price growth wasn’t totally clear given other trends in the economy. But the tariffs are certainly a factor in rising expectations that price hikes will accelerate, he said — though for now, firmer inflation would most likely be “transitory.”
“Inflation has started to move up now, we think, partly in response to tariffs, and there may be a delay in further progress in the course of this year,” he said.
Stocks surged on the news — but bond purchases also increased, the latter reflecting concerns about growth prospects. Investors seek out bonds when they believe they can get better returns on them than other assets.
“The Fed is as lost in the wilderness as the rest of us trying to decipher the continual shifts in economic policy from 1600 Pennsylvania Avenue,” Omair Sharif, managing director of Inflation Insights consultancy, said in a note to clients following Wednesday’s rate decision.
A host of indicators, not to mention comments from Trump administration officials themselves, suggest that consumer spending and employers’ hiring are both slowing. After an initial burst of optimism upon Trump’s election, growth now looks to be more subdued. Meanwhile, federal workforce cuts by Elon Musk’s Department of Government Efficiency have also raised concerns about pressure on local economies, not to mention the ability of newly jobless workers to receive unemployment assistance.
Sweeping White House policy changes have already unnerved investors. Last week, the S&P 500 slipped into correction territory, marking a 10% drop from its latest peak, for the first time in three years.
As surveys suggest consumer and business confidence are declining, Trump and senior officials have changed their messaging since the campaign, warning consumers to brace for potential economic pain and declining to rule out the possibility of a recession. Trump has signaled the economy may be in for a period of “transition” as his policies take effect, while Treasury Secretary Scott Bessent recently said the United States must “detox” from its reliance on public spending.
The upheaval has created new difficulties for the Fed to navigate as it sets borrowing rates. It is charged by Congress with helping keep unemployment and inflation low. Right now, both are fairly subdued. Yet multiple analysts said Wednesday that the Fed’s latest outlook signals the prospect of stagflation — higher inflation despite lower overall growth — albeit far short of the shock caused by the oil crisis of the 1970s.
“Revisions to [policymakers’] projections had a somewhat ‘stagflationary’ feel with forecasts for growth and inflation moving in opposite directions,” Goldman Sachs managing director Whitney Watson said in a note Wednesday afternoon. “For the time being the Fed is in wait and see mode, as it monitors whether the recent growth slowdown develops into something more serious.”
That has drawn multiple interpretations among analysts looking for signs of the Fed’s thinking.
Seema Shah, chief global strategist at Principal Asset Management, said the revised projections indicate the Fed may soon start paying closer attention to the labor market, wary of letting unemployment rise too high. Fed policymakers are still indicating that they expect “rate cuts will be necessary in the near future — they just need a full set of information to give them the green light,” she said.
Sharif of Inflation Insights, by contrast, said the fact that the Fed still foresees no more than two rate cuts this year suggests a more “hawkish” stance, with policymakers focusing more on controlling price growth than on keeping unemployment in check.
He said the situation was reminiscent of 2022, when the Fed decided not to signal rate cuts were forthcoming because inflation remained elevated.
“The Fed saw downside risks to growth and upside risks to unemployment, but they continued to power ahead with rate hikes,” Sharif said of policymakers’ approach at the time. “They’re saying now that they will err on the side of making sure inflation does not get out of hand again.”
Rob Wile is a Pulitzer Prize-winning journalist covering breaking business stories for NBCNews.com.
© 2025 NBCUniversal Media, LLC
