WASHINGTON — The Federal Reserve on Wednesday held its key interest rate unchanged as it waits for the Trump administration’s trade policy to take shape and sees its impact on a sputtering economy.In a move that carried little suspense given the wave of uncertainty sweeping the political and economic landscape, the Federal Open Market Committee held its benchmark overnight borrowing rate in a range between 4.25%-4.5%, where it has been since December.The post-meeting statement noted the volatility and how that is factoring into policy decisions.”Uncertainty about the economic outlook has increased further,” the statement said. “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.”While the statement did not specifically address the tariffs, Chair Jerome Powell addressed the issue at his post-meeting news conference.[embedded content]Stocks briefly ceded some gains after the rate announcement but mostly recovered, with the Dow Jones Industrial Average up more than 100 points despite some worries over the Fed’s characterization of the economic risks.”The May FOMC statement in effect warns that a large trade shock is still set to hit the economy in spite of efforts by the Trump administration to deescalate, with the Fed seeing the risks ahead as two-sided and not providing any early dovish lean in favor of a June rate cut,” wrote Krishna Guha, head of global policy and central bank strategy at Evercore ISI. “The net implications for risk assets are negative.”A possible stagflationary scenarioFinding the balance between the two elements of the Fed’s so-called dual mandate of full employment and stable prices has been made more difficult lately amid President Donald Trump’s tariff push.In noting that tariffs both threaten to aggravate inflation as well as slow economic growth, the statement raises the possibility of a stagflationary scenario largely absent from the U.S. since the early 1980s.Policymakers have largely been in agreement that the central bank is in a good position, with the economy generally holding up for now, to be patient as it calibrates monetary policy.Powell emphasized this during the press conference. “The economy itself is still in solid shape,” he said.The Fed’s deliberations come as the White House is locked on negotiations with t …
