Fed Keeps Rates Unchanged, Warns ‘Uncertainty About The Economic Outlook Has Increased Further’

The Federal Reserve on Wednesday maintained its benchmark overnight borrowing rate unchanged in the range of 4.25% to 4.5% where it has been since December.

“Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” the Federal Open Market Committee said in its statement.

The FOMC also noted that the unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. “Inflation remains somewhat elevated,” it said.

The Committee also said it will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage‑backed securities.

Chris Brigati, chief investment officer at SWBC told CNBC that there are serious concerns that the tariff situation will introduce inflationary pressures that will begin to reveal themselves as time progresses.

“We fear inflation will remain elevated and sticky, if not specifically moving meaningfully higher, causing interest rates to remain higher until inflation is tamed.”

Seema Shah, chief global strategist at Principal Asset Management, told Bloomberg that the central bank has been plunged into an almost impossible situation whereby its two mandates will likely move in opposite directions. 

“Certainly, the recent Trump headline suggesting an already hardline approach to China tariff negotiations, further reinforces the uncomfortable position for the Fed. In this situation, what else can the Fed do but sit on its hands? Rate cuts will be required but, increasingly, it seems that the Fed will need to wait until late Q3 before the window of opportunity opens,” she told Bloomberg.

Following the release of the policy outcome, traders expect the Fed to maintain a status quo policy in June, according to the CME FedWatch Tool.

Meanwhile, benchmark indices traded in the red. The SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500, traded 0.31% lower on Wednesday, while the Invesco QQQ Trust, Series 1 (QQQ), which tracks the Nasdaq Composite, was down 0.78%.

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