The Federal Reserve left its key interest rate unchanged after concluding its meeting on Wednesday, as it awaits answers on trade policy and a clearer view of the economic outlook. In a statement, the Fed judged that “risks of higher unemployment and higher inflation have risen,” reflecting concerns that tariffs could force the central bank to prioritize one part of its dual mandate over the other. But given that tariffs and trade deals are still taking shape, the Fed can let the situation develop before determining a monetary policy response, Chair Jay Powell said in a press conference. On Thursday, the US and UK announced a deal addressing tariffs and other trade issues.

Officials are battling crosswinds as they evaluate how policy uncertainty and the imposition of tariffs could influence prices, the labor market, and the broader economy. GDP data and other economic indicators likely have been skewed by companies stockpiling goods to avoid tariffs down the road. The US’s trade deficit hit a record of $140.5 billion in March amid a surge in pharmaceutical shipments and other imports, the Commerce Department said on Tuesday. Following a busy second half of 2024, a recent drop in bookings for container ships destined for the US West Coast suggests that port activity will slow at least for the near future, according to the Marine Exchange of Southern California. Despite business sentiment coming under pressure, Powell said the economy has not felt a tariff-related shock and remains in a “solid position,” citing resilient employment and consumer spending. PGIM Fixed Income Chief US Economist Tom Porcelli discusses stagflation risks, the potential for rate cuts this year, and other key takeaways from the Fed meeting.