The US Federal Reserve held its benchmark interest rate steady for the third consecutive time on Wednesday, pointing to heightened economic uncertainty and increased risks of higher inflation in the midst of President Donald Trump's aggressive tariff policy.
Following the two-day Federal Open Market Committee meeting, the central bank announced a decision to keep the key rate at the 4.25-4.50 percent range, as it is taking a wait-and-see stance to monitor and assess the impact of Trump's new tariffs despite his repeated calls for a rate reduction.
The Fed paused cuts in January and March following a quarter percentage point reduction in December.
In a press release, the Fed reflected its assessment of the ramifications from Trump's new tariffs.
"Uncertainty about the economic outlook has increased further," the Fed 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."
It was referring to the Fed's dual objective of achieving maximum employment and inflation at the rate of 2 percent over the long run.
Fed Chair Jerome Powell told reporters that the announced US tariff increases have been "significantly larger than anticipated."
"If the large increases in tariffs that have been announced are sustained, they're likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment," Powell said during a press conference.
"The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent."
The chair underscored that there is "so much uncertainty" about the scale, scope, timing and persistence of Trump's tariffs -- a reason why the central bank has been in a wait-and-see mode.
"For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance," he said.
He pointed out that the US is in a "new phase" now, where the Trump administration has begun trade talks with America's key trading partners.
"That has the potential to change the picture materially or not. So, I think it's going to be very important how that shakes out," he said.
"But we simply have to wait and see how it works out. It certainly could change the picture, and we are mindful of not trying to make conclusive judgements about what will happen at a time when the facts are changing."
Asked if Trump's call for a rate cut affects policy decisions, Powell said it does not.
"(It) doesn't affect doing our job at all," he said. "We are always going to do the same thing, which is we are going to use our tools to foster maximum employment and price stability for the benefit of the American people."
Despite concerns that new tariffs could lead to higher prices and slower growth, Trump has rolled out a baseline 10 percent tariff on most US imports, as well as 25 percent levies on steel, aluminum and autos, while pausing steep "reciprocal" tariffs until July 8 to allow for negotiations with trading partners.
This week's rate decision put the gap between the key rates of South Korea and the United States at up to 1.75 percentage points.
The Fed has envisioned two rate cuts this year, down from four projected in September. (Yonhap)
