By Howard Schneider

(Reuters) – The American Federal Reserve (Fed) maintained its interest rates unchanged on Wednesday and reported that borrowing costs should decrease this year, while slowing down the overall rate of future rate drops in the face of the prospect of an increase in inflation resulting from the White House trade policy.

The Fed has as expected maintained the rate of “Fed Funds” rate in a range of 4.25% to 4.50%, the same level as since December.

This decision was made unanimously, said the American central bank in a statement published after its two -day monetary policy meeting.

In its up -to -date economic forecasts, the first since the announcement of a salvo of customs duties by the American president in April, the Fed brush a slightly stagflationist table of the American economy, with economic growth which must slow down to 1.4% this year, an unemployment rate reaching 4.5% and an inflation of 3% at the end of 2025, that is to say much than the current levels.

If officials of American monetary policy still plan to reduce the rates of half a percentage this year, as they have planned in March and December, they expect the pace of flexibility to slow down thereafter.

Thus, the Fed plans to reduce a quarter of a percentage point in 2026, followed by an identical drop in 2027.

During a press conference at the end of the meeting, the president of the central bank Jerome Powell, however, warned that “nobody holds these rate trajectories with a lot of conviction, and everyone would agree that they will all depend on the data”.

“All external forecastists and the Fed say that we expect a significant quantity of inflation to arrive in the coming months and we have to take it into account,” he added.

Uncertainty reached a peak in April

The inflation of goods is expected to increase in the summer as the customs duties decided by Donald Trump will affect consumers, said Jerome Powell.

The updated projections of the Fed report an EPC inflation estimated at 3% at the end of 2025, against 2.7% in the projections of March. This inflation indicator, based on personal consumption expenditure, is Fed’s favorite to decide its rates.

Inflation must then remain high, at 2.4% in 2026 before falling to 2.1% in 2027 in a context of largely stable unemployment.

Jerome Powell also said that the Fed was well left to wait until more about the evolution of the economy, adding that uncertainty had reduced for a peak reached in April.

“Uncertainty about the economic prospects has decreased but remains high,” said the Fed in its last declaration of general policy, thus changing the language used in May, at a more agitated moment of the commercial debate, when it had declared that the risk of an increase in inflation and unemployment had increased.

The growth of 1.4% of GDP planned for this year is to be compared to the projection of 1.7% published in March and the unemployment rate of 4.5% expected at the end of 2025 implies a slight increase compared to that of 4.4% planned previously.

In May, the American unemployment rate emerged at 4.2%.

“The unemployment rate remains low and labor market conditions remain solid,” said the Fed.

The Fed did not mention in its declaration the sudden trigger for hostilities between Israel and Iran and the risk that this conflict is weighing on the world oil markets or other markets, but its president said at the press conference that the increase in crude prices should not have lasting effects on inflation.

“Not a lot of surprises”

“I do not think there are many surprises (…) The Fed revised upwards its inflation forecasts – obviously to be conservative in terms of potential impact of customs duties – and has slightly revised its growth forecasts. We expected it a little,” said Michael James, analyst at Rosenblatt Securities.

The median opinion of the institution officials on the rates of federal funds at the end of 2025 is confirmed at 3.9%, as in March.

The central bank lowered the rate of federal funds from a percentage point in 2024, the last time in December, and since it wants to be cautious with the uncertainty about customs duties and the policy deemed erratic of Donald Trump.

The central bank lowered the rate of federal funds from a percentage point in 2024 and has been cautious since due to the uncertainty linked to customs duties and the policy deemed erratic of Donald Trump.

The projections on the rates of Fed officials for at least 2025 comply with recent market expectations which predict a reduction of a quarter of percentage from the September meeting.

According to the term contracts on the rates of federal funds, the chances that the Fed resumes its rate reductions at its September meeting, with an estimated probability of around 64%, against 58% before its decision. The operators also revised the chances of a new reduction at the October meeting.

The institution continues to ignore the white house call in favor of an immediate drop in rates, a measure which, according to Fed officials, would go against efforts to guarantee that inflation returns to the target of 2% until the main tariff changes are finalized and their effects are better understood.

Donald Trump has been criticizing Jerome Powell for a long time, pressing the boss of the Central Bank to lower its rates to give air to households and businesses.

(Report Howard Schneider and Michael S. Derby; Diana Mandiá, edited by Zhifan Liu and Benjamin Mallet)

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