The Federal Reserve is set Wednesday to announce its first interest rate decision since President Donald Trump’s economic policies took hold.
The U.S. central bank is expected to leave rates unchanged as it waits to see how the president’s expanding trade war, mass firings of federal workers and other changes affect the economy.
A host of indicators, not to mention comments from Trump administration officials themselves, suggest that consumer spending and employers’ hiring are both slowing. After an initial burst of optimism upon Trump’s election, growth now looks to be more subdued. Meanwhile, federal workforce cuts by Elon Musk’s Department of Government Efficiency have also raised concerns about pressure on local economies, not to mention the ability of newly jobless workers to receive unemployment assistance.
The sweeping changes have also heightened uncertainty among investors. Last week, the S&P 500 slipped into correction territory, marking a 10% drop from its latest peak, for the first time in three years.
As surveys suggest consumer and business confidence is tanking, Trump and senior officials have changed their messaging since the campaign, warning consumers to brace for potential economic pain and declining to rule out the possibility of a recession. Trump has signaled the economy may be in for a period of “transition” as his policies take effect, while Treasury Secretary Scott Bessent recently said the U.S. must “detox” from its reliance on public spending.
The upheaval has created a more difficult backdrop for the Federal Reserve to navigate as it sets borrowing rates for the U.S. The central bank is charged by Congress with helping keep both unemployment and inflation low. Right now, both are fairly subdued. Yet, there are signs they are set to rise as the Trump administration looks to slash government agencies and impose steep new tariffs that major businesses have already warned shoppers could pay for.
“They are facing the most difficult challenge a central bank ever faces when the shock is both pushing up prices, in terms of imports, and reducing jobs, in terms of input costs,” former Treasury Secretary Larry Summers said in a post on X on Tuesday. “This is what tariffs do.”
Summers called the current trends in the economy a “stagflationary shock,” a view other economic commentators have echoed as a series of recent surveys show rising pessimism on everything from the job market to the pace of price increases.
So far, Fed Chair Jerome Powell has projected calm.
“Despite elevated levels of uncertainty, the U.S. economy continues to be in a good place,” Powell said earlier this month. “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”
