The US Federal Reserve kept interest rates unchanged on Wednesday and also projected a slower pace of cuts as it expects higher inflation because of tariffs.
This week's decision was the fourth consecutive time the Fed has held rates steady after lowering them by 100 basis points to about 4.33 per cent last year.
The UAE's central bank also held rates steady after the Fed's announcement.
While the Fed's rate decision was seen as set heading into this week's meeting, Wednesday marked the first time that officials had to estimate how tariffs would affect inflation, unemployment, economic growth and their rate path since President Donald Trump's “Liberation Day” announcement on April 2.
"The effects of tariffs will depend, among other things, on their ultimate level," Fed chairman Jerome Powell told a news conference.
While those effects are not expected to be as significant as previously believed, he said "tariffs this year are likely to push up prices and weigh on economic activity".
"We're adapting in real time," he added.
The Fed said it expects to cut interest rates twice this year, unchanged from its March projection. However, it now anticipates a slower rate in 2026 and 2027 with policymakers projecting rates to be roughly a quarter-point higher than previously forecast each year.
Traders forecast the Fed will cut rates twice this year starting in September, in line with central bank estimates.
"You got a very much as expected no-rate decision," said Art Hogan, chief market strategist at B Riley Wealth. "It was hard to drum up news around the Fed meeting when we're concerned about passing a big tax cut bill and wondering if there's going to be more escalation with Israel and Iran."
Updated economic projections reinforce recent concerns of a low-growth, high-inflation outlook.
The Fed estimates inflation to rise to 3.1 per cent by end of this year, compared to its previous estimate of 2.7 per cent. The Fed also lowered its projected economic growth this year from 1.7 per cent to 1.4 per cent.
It also estimated the unemployment rate to increase to 4.5 per cent this year compared to 4.4 per cent previously.
Recent data has produced mixed signals about the US economy. Inflation has moderated but remains above the Fed's 2 per cent target. The unemployment rate remains stable at 4.2 per cent, but slowing employment growth and a four-week rise in jobless claims point to a cooling labour market.
The economy also slowed last quarter, with economists attributing the 0.2 per cent contraction to a rush of imports ahead of tariffs coming into effect.
Meanwhile, retail sales dragged last month due to a decline in consumer spending, after shoppers rushed to buy goods before tariffs were expected.
Escalating tension between Israel and Iran has added another layer of uncertainty for the Fed to deal with. Global oil prices are rising in volatile trade and a potential US involvement in Israel's strikes on Iran will further upset oil markets, a scenario the US President wants to avoid to keep consumer prices stable in the domestic market.
However, Mr Powell said the crisis between Israel and Iran is not expected to have an inflationary effect.
"We're watching ... what's going on," Mr Powell said. "You may see a spike in energy prices. Those things don't generally tend to have lasting effects on inflation."
He said the oil crisis in the 1970s was in exception. "Now the US economy is far less dependent on foreign oil."
Brent crude was trading 0.38 per cent higher at $76.74 a barrel while West Texas Intermediate, the gauge for US crude, was up 0.47 per cent to $75.19 a barrel at 3.30pm ET.
Trump resumes attacks on Powell
Hours before the rate decision, Mr Trump again lashed out at Mr Powell over the Fed's cautious posture.
Mr Trump told reporters at the White House that interest rates should be a full two points lower than their current level.
He has recently said he will not fire Mr Powell before his term as Fed chairman expires next year after previously considering the option. On Wednesday, he said he will wait for Mr Powell's term to end and then “get the rates way down”.
“Powell's too late,” said Mr Trump, who mused about appointing himself as Fed chair.
Mr Powell did not directly answer when asked how markets should react to Mr Trump's calls for rate cuts.
"From my standpoint, it's not complicated," he said. "What everyone on the [Federal Open Market Committee] wants is a good, solid American economy with strong labour market and price stability."
Mr Powell did not say if he intends to stay on the Fed board as governor after his term as chairman expires.
