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WASHINGTON, May 7 (Reuters) – The Federal Reserve held interest rates steady on Wednesday but said the risks of higher inflation and unemployment had risen, further clouding the economic outlook as the U.S. central bank grapples with the impact of Trump administration tariff policies.
The economy overall has “continued to expand at a solid pace,” the Fed said in a policy statement, attributing a drop in first-quarter output to record imports as businesses and households rushed to front-run new import taxes.
The labor market also remained “solid” and inflation was still “somewhat elevated,” the central bank’s policy-setting Federal Open Market Committee said, repeating the language used in its previous statement.
But the latest statement highlighted developing risks that could leave the Fed with difficult choices in the coming months.
“Uncertainty about the economic outlook has increased further,” the FOMC said at the end of a two-day meeting during which officials agreed unanimously to keep the central bank’s benchmark interest rate steady in the 4.25%-4.50% range.
“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,” the statement said.
U.S. Treasury yields were little changed and stocks slightly extended gains after the release of the statement. Traders continued to eye a rate cut at the Fed’s meeting in late July.
The Fed’s policy rate has been unchanged since December as officials struggle to estimate the impact of President Donald Trump’s import tariffs, which have raised the prospect of higher inflation and slower economic growth this year.
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