Fed keeps interest rate unchanged, cuts US growth forecast

The Federal Reserve kept its benchmark interest rate unchanged Wednesday and signaled that it still expects to cut rates twice this year, though it said the outlook is more uncertain. The Fed also now expects the economy to grow more slowly this year and next than it did three months ago, according to a set of quarterly economic projections also released Wednesday. It also expects the unemployment rate to tick higher, to 4.4%, by the end of this year. Policymakers also expect inflation will pick up slightly this year, to 2.7% from its current level of 2.5%. Both are above the central bank’s 2% target. The Trump administration’s initial policies, including extensive import tariffs, appear to have tilted the U.S. economy toward slower growth and at least temporarily higher inflation, Federal Reserve Chair Jerome Powell said.
While Fed policymakers still expect the central bank to deliver two quarter-percentage-point rate cuts by the end of this year, matching their projection in December, that’s largely due to weakened economic growth offsetting higher inflation, and what Powell called the “inertia” of not knowing what else to do given the muddled outlook. There is “just really high uncertainty. What would you write down?” when making projections, Powell said in a news conference after the end of the Fed’s latest two-day policy meeting. “I mean it’s just … really hard to know how this is going to work out.” 
“We understand that sentiment is quite negative at this time, and that probably has to do with turmoil at the beginning of an administration that’s making big changes,” Powell said. Overall economic data remains solid, the Fed chief said, pointing to the current unemployment rate of 4.1% and a sense that the job market remains roughly in balance.
Trump posted late on Wednesday on his Truth Social platform: “The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy. Do the right thing.” Powell’s remarks and the Fed’s latest set of policymaker projections was heavily influenced by what has transpired since Trump took office on January 20 with a vow to impose the import tariffs. Data released along with the latest policy and economic projections showed Fed officials in near unanimity that the outlook was less certain than usual, and that risks considered balanced as of the Fed’s January 28-29 meeting were now tilted towards slower growth, higher joblessness, and higher inflation.
Powell said the Fed will be watching intently in coming months to determine how much of all those actions passes through to consumer prices, whether those levies or other countries’ retaliatory responses seem to be causing more persistent price pressures, and perhaps most importantly whether it all starts to feed into inflationary psychology among families and businesses. Though some measures of inflation expectations have moved higher in the early weeks of the Trump administration, the longer-run measures that the Fed regards as most important to achieving its policy goals “haven’t moved much,” Powell told reporters.