The Federal Reserve has decided to keep its benchmark interest rates unchanged, maintaining a range of 4.25% to 4.5%, a level it has held since December.

This decision comes amidst concerns over the impact of tariffs on economic slowdown, with markets anticipating no changes from the recent two-day monetary policy meeting.

Despite uncertainties surrounding the effects of tariffs initiated by the Trump administration and an ambitious fiscal policy of tax cuts and deregulation, officials have signaled expectations for additional interest rate reductions of half a percentage point by 2025. The Federal Reserve favors adjustments in increments of 0.25 percentage points, which could translate to two rate cuts within this year.

The news positively influenced the stock market, with the Dow Jones Industrial Average increasing by over 400 points following the announcement.

However, Federal Reserve Chair Jerome Powell stressed during the subsequent press conference that the central bank is prepared to maintain elevated interest rates if economic conditions warrant such action, stating, 'If the economy remains strong and inflation does not persistently move toward 2%, we may need to keep a restrictive monetary policy for a longer period.' He further noted that if labor market conditions unexpectedly weaken or inflation declines more rapidly than anticipated, the Fed may adjust its policy accordingly.

In a statement following the meeting, the Federal Open Market Committee (FOMC) highlighted a rising level of uncertainty regarding the current economic landscape.

The statement conveyed that 'the uncertainty around the economic outlook has increased,' as the committee continues to monitor risks that impact its dual mandate of maximum employment and stable prices.

Powell indicated a slowdown in consumer spending and that tariffs could add upward pressure on prices.

These trends may have contributed to the committee's more cautious economic outlook.

The FOMC revised down its collective economic growth forecast, now projecting a growth rate of just 1.7% for this year, a reduction of 0.4 percentage points from its previous estimate in December.

As for inflation, the officials now expect core prices to increase at an annual rate of 2.8%, which is 0.3 percentage points higher than earlier projections.

In addition to the interest rate decision, the Fed announced a further reduction in its quantitative tightening program.

The central bank will now allow only $5 billion from matured government bond yields to exit the system monthly, down from the prior limit of $25 billion.

However, the cap on mortgage-backed securities remains unchanged at $35 billion, a level the Fed has rarely reached since the program commenced.

Federal Reserve Governor Christopher Waller was the sole dissenting vote regarding this decision.

Nonetheless, Waller supported the decision to hold interest rates steady but advocated for the QT program to remain unchanged.

Commentators have noted that this action indirectly lowers interest rates by reducing the pace of the Fed's reduction of its government bonds.

The necessity for the Fed to consider multiple factors in balancing risks has made this maneuver one of the more straightforward options.

This development potentially opens the path for the Fed to completely halt its QT program by summer, with hopes that inflation data might align favorably to foster a clear decision on reducing the benchmark interest rate.

These decisions from the Federal Reserve occur amid a tumultuous start to President Trump’s second term, characterized by the introduction of tariffs on steel, aluminum, and various other products from nations that are trade partners with the United States, significantly impacting financial markets.