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.