Fed leaves rates on hold, warns of "higher risks" to U.S. economy

The Federal Reserve kept interest rates steady for the third consecutive meeting on Wednesday, as it cautioned about the economic fallout from tariffs.Why it matters: The Fed warned about the potential of higher prices and a spike in joblessness, as President Trump presses on with aggressive efforts to reset global trade.Driving the news: The Fed's rate-setting committee voted unanimously to keep the federal funds rate at a range of 4.25% to 4.5%.New language in the Fed's closely watched policy statement said the committee "judges that the risks of higher unemployment and higher inflation have risen."The Fed maintained language that said the economic outlook looked uncertain, though the statement added that uncertainty "has increased further."State of play: The Fed noted that economic indicators pointed to a healthy economy, "although swings in net exports have affected the data," referring to the impact of businesses front-loading purchases ahead of tariffs taking effect.Other, more timely indicators reflect the effects of intensifying trade wars. Consumer surveys show plunging economic sentiment. U.S. ports warn that shipping container volume is set to plummet.The big picture: Fed chair Jerome Powell told reporters on Wednesday that rate policy was in a good place as the central bank waits to see how trade policy shakes out."The risks of higher unemployment and higher inflation have increased, but they have not materialized," Powell said at a news conference."The administration is entering into negotiations with many countries over tariffs," he later said. "We'll know more with each week and month it goes by where about where tariffs are going to land."The intrigue: The Fed dilemma is which potential impact is worse: the tariff-driven inflation. which would warrant higher rates; or a tariff-fueled slowdown in hiring and economic growth, which would push the Fed to slash rates."Let's just say this would be a complicated and challenging judgment that we would have to make," Powell said of a potential stagflation scenario. "We haven't faced that question in a very long time."What to watch: Trump, who first nominated Powell to the post in 2017, has walked back earlier suggestions that he would fire the Fed chief. But he has ramped up public pressure on the Fed to cut rates.Editor's note: This story has been updated with comments by Fed chair Jerome Powell.

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