By COLBY SMITH NYTimes News Service
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WASHINGTON — The Federal Reserve left interest rates unchanged in its meeting Wednesday for a second time in a row, and officials stuck to their previous forecast for two more cuts this year.

But policymakers indicated that they are bracing for higher inflation and slower growth as a result of President Donald Trump’s policies, which they said had increased “uncertainty” about the economic outlook.

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The central bank’s decision to hold interest rates at 4.25% to 4.5% extends a pause that has been in place since January, following a series of cuts in late 2024 that lowered borrowing costs by 1 percentage point.

When — and to some extent whether — the Fed ultimately follows through with cutting rates again this year remains dependent on Trump’s economic plans, including the tariffs he has threatened or imposed. ​ Wednesday’s meeting marked the central bank’s most direct acknowledgment to date that the president’s policies are set to have a real impact on the economy.

Jerome Powell, the Fed chair, conceded at a news conference that tariffs meant “further progress may be delayed” on getting inflation back to the central bank’s 2% target, a recognition that was also reflected in higher inflation forecasts officials penciled into new economic projections released Wednesday.

Tariffs could also make extracting a signal from inflation all the more difficult, Powell noted. “In the current situation, uncertainty is remarkably high,” he said.

Investors appeared to welcome the Fed’s decision, despite the uncertainty ahead. Stocks eased back from their early highs but still ended the day higher, with the S&P 500 rising 1.1%.

Powell’s comments come as the president has threatened tariffs on a scale beyond what many economists and policymakers initially expected. After much flip-flopping, levies on certain imports from Canada, Mexico and China are now in place, along with tariffs on all foreign steel and aluminum that comes into the United States. Trump and his advisers are now working on so-called reciprocal tariffs, which are due to be announced April 2 and aim to match the tariffs that other countries charge on U.S. exports, while also factoring in other penalties such as taxes and currency manipulation.

The fear is that these policies, coupled with Trump’s efforts to slash government spending and deport immigrants, will not only intensify already sticky price pressures but also knock off course what has been a remarkably resilient economy. Taxes and deregulatory measures could help to prop up growth to some extent, which is why the Fed is primarily focused on the net effect of the government’s agenda.

Asked about a recent turn in sentiment data that suggests consumers have lost a lot of confidence in the economic outlook, Powell said the “quite negative” shift “probably has to do with turmoil at the beginning of an administration that’s making big changes in policy.”

These dynamics were on full display in a new set of economic projections, published by the Fed, that captured officials’ most comprehensive analysis yet of how the outlook is evolving now that Trump has begun to implement parts of his economic agenda.

Most officials still expect interest rates to decline this year to 3.75% to 4%, as was the case when projections were last published in December. But eight policymakers forecast either no additional cuts or just one. Only two thought the Fed would lower rates by 0.75 percentage points. That translates to three quarter-point cuts.

By the end of 2026, most officials expect interest rates to decline by another half a percentage point, to 3.25% to 3.5%, before falling to around 3% in 2027.

Fed officials now see the economy growing only 1.7% this year, compared with their initial expectation of a 2.1% expansion, and they predict that the unemployment rate will rise to 4.4%. Officials also lifted their forecasts for core inflation, which strips out volatile food and energy prices, to 2.8%. Back in December, they expected it to end the year at 2.5%, already a big step up from earlier estimates.

Powell said the Fed could afford to continue being patient at this juncture when it comes to making fresh policy decisions, especially given its assessment that the economy was still in a good place.

“We’re not going to be in any hurry to move,” he said. “We’re well positioned to wait for further clarity,” on the administration’s policies.

Asked about the possibility that at some point the Fed’s goals of achieving low, stable inflation and a healthy labor market would come into tension with one another, Powell said it would be a “very challenging” situation, but not one that appeared to be on the horizon.

“We don’t have that situation right now,” he said. “That’s not where the economy is at all. It’s also not where the forecast is.”

Vincent Reinhart, a former Fed economist who is now chief economist at BNY Investments, warned that the central bank’s policy choices “are going to get harder,” based on his expectation that inflation risks stemming from tariffs could prove to be more meaningful than the central bank currently predicts.

Also on Wednesday, the Fed announced that it would slow the reduction of its roughly $6.8 trillion balance sheet to avoid amplifying disruptions that could crop up in funding markets because of the ongoing standoff over the debt ceiling, which limits how much money the government can borrow to meet its financial obligations. The Fed will now cap the amount of Treasury securities it will allow to roll off its balance sheet at $5 billion per month, down from $25 billion. It kept the monthly cap unchanged for mortgage-backed securities. Christopher Waller, a Fed governor, voted against the decision.

This article originally appeared in The New York Times.

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