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WASHINGTON — The United States Federal Reserve kept its key interest rate unchanged Wednesday, brushing off U.S. President Donald Trump’s demands to lower borrowing costs, and said that the risks of higher unemployment and higher inflation have risen.
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The Fed kept its rate at 4.3 per cent for the third straight meeting, after cutting it three times in a row at the end of last year. Many economists and Wall Street investors still expect the Fed will reduce rates two or three times this year, but the sweeping tariffs imposed by Trump have injected a tremendous amount of uncertainty into the U.S. economy and the Fed’s policies.
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It is unusual for the Fed to say that the risk of both higher prices and more unemployment have increased. But economists say that is the threat created by Trump’s sweeping tariffs. The import taxes could both lift inflation by making imported parts and finished goods more expensive, while also raising unemployment by causing companies to cut jobs as their costs rise.
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As a result, the tariffs have put the Fed in a difficult spot. The Fed’s goals are to keep prices stable and maximize employment. Typically, when inflation rises, the Fed raises rates to slow borrowing and spending and cool inflation, while if layoffs rise, it would reduce rates to spur more spending and growth.
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